The investment banking interview question we’re going to go over today is “How does $10 increase in debt affect the financial statements?” This is a much easier accounting question than the $10 increase in depreciation question. You should check out that article if you haven’t seen it yet. Here’s how you should answer it.
“Nothing changes to the Income Statement, so everything stays the same.
On the Cash Flow Statement, no changes to Cash Flow from Operations and Cash Flow from Investing. But under Cash Flow from Financing, Proceeds from Issuance of Debt goes up by $10. And so total Net Change in Cash goes up by $10.
On the Balance Sheet, under the Assets side, Cash and Cash Equivalents increases by $10. Under the Liabilities and Equity Side, Debt increases by $10. And the Balance Sheet balances.”
That’s how you should answer the question: “How does $10 increase in debt affect the financial statements”. This is a pretty simple one. The other more advanced 3-statement accounting questions can be a lot more complicated. The key here is to walk the interviewer through the changes step by step. Don’t jump around.
More IBD Interview Questions
How does $10 increase in depreciation affect the financial statements?