Accounting Foundations
IB · Accounting
Three statements, accruals, working capital, and common interview adjustments.
Three statements and accrual logic
Why interviewers start here
Almost every technical interview opens with "walk me through the three statements". The interviewer is not testing memory of line items — they want to hear that you understand how the statements link, because every model you will build (DCF, LBO, merger) is a three-statement model underneath.
Drawing diagram…
Net income from the income statement is the first line of cash from operations and, after dividends, flows into retained earnings on the balance sheet. D&A is a non-cash expense: it is added back in cash from operations and reduces PP&E. Cash from operations, investing and financing sum to the net change in cash, which updates the balance sheet cash line.
Common pitfall
Net income is not cash flow. Depreciation gets added back, and a working-capital swing can flip the sign of the answer — walk the statements in order, never from memory.
Study module
- Accounting Foundations50 min