Definition: The process of adjusting, normalizing or recasting a business's financial statements to determine the true earnings

See Also: Adjustment, SDE.

Tips: This process is also used so the earnings of the business can easily be compared with those of other businesses. Most business owners manage their small businesses with the goal of minimizing taxable income by deducting expenses that are not directly related to the business’s operations. For this reason, it is often necessary to adjust the financial statements by “adding back” these expenses in order to show potential owners the actual cash flow available.