6.4 SR 06-06-2022 - Laserfiche WebLink

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City of Elk River Notes to Basic Financial Statements NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 10. Unearned Revenue Unearned revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are also recorded as unearned revenue. 11. Fund Balance In the fund financial statements, governmental funds report various levels of spending constraints. • Nonspendable Fund Balances — These are amounts that cannot be spent because they are not in spendable form as they are legally or contractually required to be maintained intact and include prepaid items, inventory, and advances to other funds. • Restricted Fund Balances —These are subject to externally enforceable legal restrictions. • Committed Fund Balances — The government's highest level of decision making authority is the City Council. The formal action to establish or modify a commitment is made through resolution. Committed amounts cannot be used for any other purpose unless the City Council modifies or rescinds the commitment by resolution. • Assigned Fund Balances — Amounts constrained for specific purposes that are internally imposed. In governmental funds other than the General Fund, assigned fund balance represents all remaining amounts that are not classified as nonspendable and are neither restricted nor committed. The City Council has adopted a fund balance policy which delegates the authority to assign amounts for specific purposes to the City Administrator. Minimum Fund Balance Policy — The City has formally adopted a fund balance policy for the General Fund. The City's policy is to maintain a minimum unassigned fund balance of 40-45% of budgeted operating expenditures for cash -flow timing needs. The City will spend restricted funds first for expenditures that meet the intended purpose before using unrestricted fund balance. Additionally, the City would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made for the purposes intended. E. Net Position Net position represents the difference between assets and deferred outflows of resources; and liabilities and deferred inflows of resources in the government -wide financial statements. Net investment in capital assets, consists of capital assets, net accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. Net position is reported as restricted in the government -wide financial statement when there are limitations on use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. 65