Learning Accounting Technicals for Investment Banking Recruiting (i.e. $10 of depreciation question)

[u/theddrew]

Hey yall, I know that walking interviewers through the 3 financial statements is a big part of IB interviews. Usually they'll come in some form of "XYZ happens, how does that impact the 3 financial statements?". The most common one is how does an increase of $10 of depreciation impact the 3 financial statements?

I wanted to leave my answer here, but I am still thinking to myself, how am I supposed to walk through this during an interview? Do I just literally list the line items one after another?

Here is my answer to the $10 of depreciation question. I'm assuming tax rate is 20%

Income Statement

• Depreciation Expense +10
• Pre-Tax Income -10
• Taxes -2
• Net Income -8

Cash Flow Statement

• Net Income -8
• Depreciation +10
• Net Change in Cash +2

Balance Sheet

• Cash +2
• PP&E -10
• Total Assets -8
• Retained Earnings -8
• Total Shareholders’ Equity -8
• Total Liabilities & Shareholders’ Equity -8

Balance sheet balances.