Question

Why we usually make adjustment in net income statements for account payable, account receivable and inventories?...

Why we usually make adjustment in net income statements for account payable, account receivable and inventories? Also what does theses value represent?

Homework Answers

Answer #1

+While preparing the final net income statement an adjustment is required for account payable,account receivable and inventories to show the realistic value for reporting.

Inventories - Closing Inventory is opening stock + purchase - sales and inventory should be valued at cost or net realisable value a per AS 2 valuation of inventory.

The net valued inventory will show the realistic view in financial statement and this value indicates the cost remains in the stock to be sold.

Account Payable/Receivable - Account Payable/ Receivable is to be adjusted with the estimate of the non recoverable/payable amount from the final amount to show the realistic picture in the final statement.

It is pure adjustment to reflect the correct value in financial statement and the amount reflect true picture after removal of estimated non recoverable value from the total amount.

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