How to Answer: A company purchases new equipment, walk me through the impact on the 3 financial statements.
Advice and answer examples written specifically for a Finance job interview.
12. A company purchases new equipment, walk me through the impact on the 3 financial statements.
How to Answer
This is a yes or no answer and there question can be answered either yes or no. I have given two examples of how to answer this question by saying yes. And answering the question by saying no. Either way, both questions are correct, because the financial impact is correct. Using a case scenario question from a class or financial article, would be perfect to answer this question.
Written by Bobbi Witt on June 18th, 2018
Entry Level
"On the Balance Sheet, the Fixed Assets will increase both assets and accumulated depreciation plus cash will decrease (if cash payment) or in the case of a credit purchase, liabilities will increase Accounts/Notes payable.
The Income statement will be impacted with an increase to the deprecation expense.
The Cash Flow statement will increase in the investment activities."
Written by Bobbi Witt
Experience
"Initially, there is no impact (income statement); cash goes down, while PP&E goes up (balance sheet), and the purchase of PP&E is a cash outflow (cash flow statement)
Over the life of the asset: depreciation reduces net income (income statement); PP&E goes down by depreciation, while retained earnings go down (balance sheet); and depreciation is added back (because it is a non-cash expense that reduced net income) in the cash from operations section (cash flow statement)."
Written by Bobbi Witt
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