Accounting Interview Question - help
Hi Monkeys,
I received accounting-related interview question, which I solved correctly. Interviewer had different opinion on it, but I do not understand why.
Question: Imagine company with a simple balance sheet. It has 50 of inventory and 50 equity. It sells goods for 100, 50% of sales are cash, 50% are sales on credit. Assuming tax of 20%, walk me through the statements.
My answer:
I/S: Rev 100; COGS 50; EBIT 50; Tax 10; Net Income 40.
CFS: Net Income 40; Inventory boosts balance by 50 as it frees up cash, but account receivables are 50 and counter-act that. Net change in cash is 40.
B/S: Cash 40; Inventory 0; Accounts Receivable 50; Equity 50; Retained Earnings (Net Income) 40. Asset side is 90, Liabilities side is 90. Both sides balance.
Interviewer kept disagreeing and said that Accounts Receivable should increase by 25, and my ending cash would be 15, but I cannot understand why.
Update: Got info from HH. Got rejected on the basis of poor technical knowledge of accounting and valuation. I really start to believe that Private Equity is a Ponzi scheme.
bump
Your answer seems correct to me. I was thinking if there was some sort of deferred revenue twist, but if you sold the goods, you recognize it as revenue. No clue how the PE guy got something different. Must have been reading off the wrong answer key lol
Your answer is correct.
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