What moves RE; the top half of the balance sheet; the amortisation words

◈ 9 cards

State what moves retained earnings, build the current-asset section with receivables net, inventory at LCNRV and prepaids, and define the six amortisation terms with their synonyms.

Three things move retained earnings

Northlake Nordic Centre Inc. opens its third year with retained earnings of 142,600. During the year it earns net income of 71,400 and its board declares dividends of 24,000. The statement of retained earnings is four lines:

Retained earnings, beginning of year      142,600
Add: net income                            71,400
Less: dividends declared                  (24,000)
Retained earnings, end of year            190,000

Only three things move the account. Net income (or a loss) closes into it; dividends declared — declared, not paid — close out of it; and a correction of a prior-period error is booked straight to the opening balance, restated, so that this year’s income statement is not polluted by last year’s mistake (awareness only in 191). A share issue never touches it: in the same year Northlake issued 2,000 shares for 100,000, and that 100,000 sits in Common Shares — contributed capital is what owners put in, retained earnings is what the business earned and kept. Nor does paying a dividend move it; the declaration already did.

The current-asset section, with everything you now know

Bramble Lane Outfitters Ltd. at 31 December: cash 31,200; accounts receivable 148,000 with an allowance for doubtful accounts of 6,370; inventory at cost 42,100 but net realisable value 40,700; prepaid insurance 3,600. Each of the last three lines carries a Module 7 or 8 rule:

Cash                                                31,200
Accounts receivable                    148,000
  Less allowance for doubtful accounts   6,370     141,630
Inventory, at lower of cost and NRV                 40,700
Prepaid insurance                                    3,600
Total current assets                               217,130

Receivables are shown net of the allowance (the amount actually expected); inventory at the lower of cost and NRV (the 1,400 write-down went to cost of goods sold); prepaids at the unused portion; the order is liquidity. The commonest slip is listing receivables at 148,000 — the gross figure — and the allowance nowhere, which overstates current assets by 6,370.

The six words of amortisation

The rest of the module is about the assets below that line. Six terms carry it, and the paper uses every one:

Term	Meaning	Snowcat
Cost	everything paid to get the asset in place and working (L6.1)	150,000
Residual value	what the company expects to get for it at the end of its useful life	15,000
Useful life	how long this company expects to use it — years or units	5 years / 9,000 hours
Depreciable amount	cost − residual value: the total that will ever be expensed	135,000
Accumulated amortization	the contra account holding every charge to date	—
Carrying amount	cost − accumulated amortization	—

The synonyms matter because every source you will read uses a different set. ASPE says amortization; IFRS and the US texts say depreciation — same thing, and a 191 case will use the ASPE word. Carrying amount is also net book value and book value. Residual value is what the course uses throughout; the paper also says salvage value, and on a first-year paper the two are one number — but s.3061 defines them differently (see the note), so do not call them synonyms in an answer. The definition to get exactly right is the last: carrying amount is cost less accumulated amortization, not cost less residual value — 150,000 − 15,000 = 135,000 is the depreciable amount, a different quantity with a different job.

The top half of the balance sheet with every Module 7–8 rule applied: receivables net of the allowance, inventory at LCNRV, prepaids at the unused portion, in liquidity order.