Private Equity Accounting Interview Questions (2025)
Master the 3-statement framework and 12 most common PE accounting questions. Learn exactly what interviewers want, common mistakes that kill candidates, and a 7-day drill plan.
Note
Module Reading: This article accompanies the Accounting Foundations module in our Private Equity interview prep track.
Private equity interviews do test accounting—not because you're applying for an audit job, but because every PE decision is ultimately a cash + leverage + downside decision. If you can't flow a change through the 3 statements cleanly, you can't pressure-test a model, analyze covenant scenarios, or explain a returns bridge.
This guide gives you a repeatable 3-statement method, then drills you with the most common PE-style accounting interview questions—with answers, pitfalls, and how interviewers actually score them.
Practice These Concepts
Don't just read—drill. 20–30 minutes of targeted practice will cement these concepts:
- Learn Mode: Build linkage logic with instant feedback
- Drill Mode: Timed 10–15 question sets (no explanations until the end)
- Review Mode: Recycle missed questions until you're perfect
What "3-Statement Mastery" Means in PE
In private equity, "good accounting" means you can do four things fluently:
The Four Pillars of PE Accounting
| Term | Definition | Note |
|---|---|---|
| Separate earnings from cash | Distinguish accrual accounting from cash reality | Revenue ≠ cash received |
| Explain EBITDA vs. FCF | Understand what drives each and quality indicators | Critical for LBO analysis |
| Predict balance sheet consequences | Working capital, PP&E, debt, and equity impacts | Shows you understand the machine |
| Stay consistent | Cash, retained earnings, and debt all reconcile | The interviewer's check |
Interviewers love 3-statement questions because they reveal whether you understand the machine underneath every financial model. "Walk me through the three statements" and "how are they linked?" are classic recurring questions in finance interviews—and they're often the first filter.
The Only Framework You Need (IS → CFS → BS)
When you get any "impact on the 3 statements" question, do it in this order:
The Golden Rule
Income Statement → Cash Flow Statement → Balance Sheet
This sequencing works because Net Income bridges into the CFS, and ending Cash bridges into the Balance Sheet. Follow this order and you'll never lose track.
Your 10-Second Setup Line
Before you compute anything, say this:
What to Say
"I'll walk through the Income Statement first, then the Cash Flow Statement, then the Balance Sheet, and I'll make sure cash and retained earnings reconcile at the end."
That alone signals you're structured—and structure matters as much as accuracy in PE interviews.
3-Statement Impact Cheatsheet
These are the linkages you must know cold. Memorize them, then make sure you truly understand why they work.
The Core Links
Key Linkages to Memorize
- Net Income (IS) flows into:
- Cash Flow from Operations as the starting point (indirect method)
- Retained Earnings on the Balance Sheet
- Non-cash expenses (D&A, impairments) reduce Net Income, but get added back in CFO
- Working capital changes adjust CFO (because accrual ≠ cash)
- CapEx hits Cash Flow from Investing and increases PP&E (no immediate IS hit)
- Debt flows through Cash Flow from Financing and affects interest expense going forward
The Master Formulas
CFO ≈ Net Income + Non-Cash Charges − Increase in NWCThe indirect method starts with Net Income and adjusts for non-cash items and working capital changes.
CFO=Cash Flow from OperationsNWC=Net Working CapitalΔCash = CFO + CFI + CFFChange in cash equals the sum of all three cash flow sections.
CFI=Cash Flow from InvestingCFF=Cash Flow from FinancingYou don't need to recite formulas in interviews, but you should be able to use them instinctively.
PE Accounting Interview Questions (With Model Answers)
Below are the questions PE interviewers ask because they map directly to LBO drivers: cash generation, leverage capacity, and downside protection.
Common Mistakes PE Interviewers Penalize
These are the errors that turn an otherwise-strong candidate into a "no hire":
Mistakes to Avoid
- Not reconciling cash / retained earnings
If you can't close the loop, the answer is incomplete. Always verify the balance sheet still balances. - Treating non-cash items as cash (or vice versa)
D&A is the classic trap; interest is the other direction. Know which items get added back. - Ignoring taxes when the question implies them
Depreciation and interest questions are where interviewers expect a tax-aware answer. Ask for a tax rate or assume 25%. - Talking in circles instead of using IS→CFS→BS
Structure matters as much as accuracy. Use the framework consistently.
A 7-Day Drill Plan (20 Minutes/Day)
Goal: Automaticity under pressure. If you hesitate, you don't "kind of know it"—you don't know it yet.
Daily Practice Schedule
| Term | Definition | Note |
|---|---|---|
| Days 1-2 | Linkages + walkthrough questions | Walk through the 3 statements; explain how they link |
| Days 3-5 | Impact questions (repeat until perfect) | Depreciation, working capital, CapEx, debt, interest |
| Days 6-7 | Mixed timed drills | 10-question Drill Mode sets; review every miss |
The Rule
If you have to think about it for more than 3 seconds, you haven't mastered it. Keep drilling until the IS→CFS→BS flow is completely automatic.
Frequently Asked Questions
Key Takeaways
Summary
- Use the IS→CFS→BS framework for every impact question
- Know your non-cash items (D&A, impairments) vs. cash items (interest)
- Always include tax impacts when dealing with expenses
- Reconcile at the end—cash and retained earnings must tie out
- Practice under pressure—hesitation signals weak knowledge