DEF Ltd. has the following balances as of July 31, 2023:

• Cash: $12,500
• Accounts Receivable: $9,000
• Inventory: $20,000
• Accounts Payable: $7,000
• Salaries Payable: $2,500
• Vehicles: $40,000
• Accumulated Depreciation: $6,000
• Bonds Payable: $25,000
• Common Stock: $15,000
• Retained Earnings: $26,000

Requirements:

1. Prepare a trial balance.
2. Make adjusting entries for:
   • Depreciation expense: $2,000
   • Inventory adjustment: $1,500
3. Prepare an adjusted trial balance.
4. Create a statement of cash flows.
5. Discuss how inventory adjustments affect financial statements.