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Mark Cunningham discusses how to adjust leave balances in Xero, focusing on annual and personal leave. He presents two methods: the first is quick but not recommended, while the second is more comprehensive and advisable. Using the Australian version of the demo company, he navigates to the payroll and employees section. The scenario involves an employee who took leave without submitting a formal application, requiring a downward adjustment of their leave balance. Cunningham begins by detailing the simple method, which involves accessing the employee's leave tab.