Finance Mock Interview
Master 32 Finance interview questions covering financial modeling, risk analysis, and valuation.
Question 22 of 32
A company purchases new equipment, walk me through the impact on the 3 financial statements.
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Bobbi Witt is an HR Manager and Senior Level Finance and Accounting Consultant. Her experience includes 9 years at a Fortune 500 company where she held a wide range of financial and management accountabilities.
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.
Bobbi Witt is an HR Manager and Senior Level Finance and Accounting Consultant. Her experience includes 9 years at a Fortune 500 company where she held a wide range of financial and management accountabilities.
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).
Bobbi Witt is an HR Manager and Senior Level Finance and Accounting Consultant. Her experience includes 9 years at a Fortune 500 company where she held a wide range of financial and management accountabilities.
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.
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Anonymous Answer
All three types of equipment at its purchase price will be shown on the Balance sheet assets side. Cash for similar value on the balance sheet assets side will be reduced. Also, going forward depreciation of these assets will hit the P&L statement as an expense and will reduce profit hence reducing retained earnings on the liability side. Equipment value on the Assets side will reduce by the depreciation which eventually balances out assets and liabilities.
Marcie's Feedback
This is a thorough answer; nice job! Just make sure you mention and discuss all three financial statements (balance sheet; income statement; cash flow statement).
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