This document discusses the importance of accounting adjustments for financial analysis. It notes that adjustments like depreciation, provisions, revaluations must be accounted for to get an accurate picture of a company's finances. Examples are given of common adjustments that may need to be made for items like buildings, furniture, investments, debtors, and in cases of mergers and acquisitions. The document cautions that accountants may "window dress" through various accounting adjustments to inflate assets and profits, so careful analysis is needed to understand the real financial situation.

1. ACCOUNTING ADJUSTMENTS FOR FINANCIAL ANALYSIS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india www.afterschoool.tk mobile : 91+9414430763

2. Why adjustments? Financial analysis must reflect the true picture, but if you are not able to find the true accounts, you cant get the true picture. Every year we have many adjustments in accounts like depreciations, provisions etc. All these have to be taken into account while undertaking financial analysis

3. Adjustments in building Typically you compare balance of the building account in the beginning of the year and at the end of the year. If the balance in the beginning is 100 and at the end it is 120, does it mean that you have purchased building of 20. No, there may be depreciation also. Find out that. If depreciation of 10 has been charged, then you have purchased building of 30 not of 20.

4. Adjustment in furniture.... Furniture in the beginning of the year was 100 and at the end of the year was 70, does it mean that you have sold off furniture of 30. No, you might have put depreciation of 30 or you might have revalued the furniture. You have to find out the real facts. In case you have actually sold out furniture, find out how profit / loss has been treated?

5. PROVISIONS Understand the difference between provisions and reserves. Provisions are for specific purpose and are used for that purpose only. In the beginning of the year, there might be a provision, and at the end of the year the provision may disappear – trace out, how the provision has been used.

6. Adjustments in investments Let us assume that investments in the beginning of the year was 100 and at the end of the year it is 20, does it mean that you have liquidated investments of 80? there is a possibility that some investments have been transferred to short term investments (current assets), thus dont conclude without finding out the facts.

7. Adjustments in debtors... Debtors are assets of an organisation. However, they have to be assessed, evaluated and appraised. They have to be classified into good and bad categories. Provisions have to created on them, if they are bad. If they cannot be recovered at all, they have to be disposed off as bad debts. So try to find out the real picture of debtors.

8. Adjustments in case mergers and acquisitions... When two companies merge, their accounts get merged. Building in the beginning of the year was 100, it may reach 200 after merger at the end of the year. At the time of merger, building is often revalued, so find out that also. Many time, you have to remove the factors of revaluation in order to undertake proper financial analysis

9. Art of window dressing Accountants are expert in window dressing. They cook up provisions and reserves and later reallocate them and inflate assets, do accounting adjustments, and finally show profit, when it is not there. You have to be carefull about deciphering the accounts.

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