What is the adjustments in trading & P/L and balance sheet?

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Adjustments in Trading & P/L
In trading, adjustments refer to the modifications made to the Profit and Loss (P/L) account to accurately reflect income and expenses. These adjustments ensure that the financial statements present a true picture of the company’s performance.

Accrual Basis of Accounting: Revenues and expenses are recognized when they are earned or incurred, not necessarily when cash is received or paid. This helps in giving a more accurate representation of the financial position.
Inventory Adjustments: Changes in inventory levels affect the cost of goods sold. Accurate inventory valuation ensures that expenses are correctly matched with revenues.
Depreciation and Amortization: These non-cash expenses reduce the book value of assets over time, impacting the P/L account by spreading the cost of an asset over its useful life.

Balance Sheet Adjustments
Balance sheet adjustments are essential for presenting a company’s financial health. They involve modifying the values of assets, liabilities, and equity to reflect current realities.

Asset Valuation: Regular adjustments for impairment or fair value ensure that assets are not overstated. This could include write-downs for obsolete inventory or adjustments for market fluctuations.
Liability Recognition: Adjustments in liabilities may involve recognizing contingent liabilities or adjusting for accrued expenses that have not yet been paid.
Equity Adjustments: Changes in retained earnings due to net income or losses must be reflected accurately. This includes dividends declared, which reduce retained earnings.

In summary, adjustments in trading and the balance sheet are crucial for ensuring that financial statements provide a clear and accurate representation of a company's economic activities.

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