5.1. ERMUSR 05-08-2012 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 201 I AND 2010 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Nature of the business The Elk River Municipal Utilities (the Utilities) is a municipal utility established by action of the City of Elk River (the City) pursuant [o Minnesota statute 412.321 and consequently it's Electric and Water funds are enterprise funds of the City. The Public Utilities Commission ([he Commission) members are appointed by the City Council. The Commission determines all matters of policy. The Commission appoints personnel responsible for the proper administration of all affairs relating [o the Utilities. The Utilities distributes electricity and water to the residents of Elk River, Dayton, Big Lake and Otsego, Minnesota. The Utilities has considered all potential units for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the Utilities are such that exclusion would cause the Utilities' financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has se[ forth criteria [o be considered in determining financial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific financial burdens on [he primary government. There are no component units. B. Measurement focus, basis of accounting and basis of presentation The accounts of [he Utilities are organized and operated on the basis of funds. A fund is an independent fiscal and accounting entity with aself-balancing set of accounts. Fund accounting segregates funds according to [heir intended purpose and is used [o aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds is maintained consistently with legal and managerial requirements. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on [he accrual basis when the exchange takes place. Non-exchange transactions, in which the Utilities receives value without directly giving equal value in return, include property taxes, grants, entitlements and donations. Revenue from property [axes is recognized in the year for which [he [ax is levied. Revenue from grants, entitlements and donations is recognized in [he year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when [he resources are required [o be used or [he year when use is first permitted, matching requirements, in which [he Utilities must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to [he Utilities on a reimbursement basis. Grants and entitlements received before eligibility requirements are met are also recorded as unearned revenue. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 31