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<br /> 60 <br />City of Elk River <br />Notes to Basic Financial Statements <br /> <br /> <br />NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br /> <br />C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) <br />As a general rule, the effect of interfund activity has been eliminated from the government-wide <br />financial statements. Exceptions to this general rule are charges between the City's utility functions <br />and various other functions of the City. Elimination of these charges would distort the direct costs <br />and program revenues reported for the various functions concerned. <br /> <br />Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating <br />revenues and expenses generally result from providing services and producing and delivering goods in <br />connection with a proprietary fund's principal ongoing operations. The principal operating revenues <br />of the City's Enterprise Funds are charges to customers for sales and services. The City also <br />recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting <br />new customers to the system. Operating expenses for enterprise funds include the cost of sales and <br />services, administrative expenses, and depreciation on capital assets. All revenues and expenses not <br />meeting this definition are reported as nonoperating revenues and expenses. <br /> <br />When both restricted and unrestricted resources are available for use, it is the City's policy to use <br />restricted resources first, then unrestricted resources as they are needed. <br /> <br />D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Equity <br /> <br />1. Deposits and Investments <br />Cash and investments include balances from all funds that are combined and invested to the <br />extent available in various securities as authorized by state law. Earnings from the pooled <br />investments are allocated to the individual funds based on the average of month-end cash and <br />investment balances. <br /> <br />The City's cash and cash equivalents are considered to be cash on hand, demand deposits and <br />short-term investments with original maturities of three months or less from the date of <br />acquisition. <br /> <br />Minnesota Statutes authorizes the City to invest in obligations of the U.S. Treasury, agencies and <br />instrumentalities, shares of investment companies whose only investments are in the <br />aforementioned securities, obligations of the State of Minnesota or its municipalities, bankers' <br />acceptances, future contracts, repurchase and reverse repurchase agreements, and commercial <br />paper of the highest quality with a maturity of no longer than 270 days and in the Minnesota <br />Municipal Investment Pool. <br /> <br />Certain investments for the City are reported at fair value as disclosed in Note 3. The City <br />categorizes its fair value measurements within the fair value hierarchy established by generally <br />accepted accounting principles. The Hierarchy is based on the valuation inputs used to measure <br />the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; <br />Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable <br />inputs. <br />Page 181 of 464