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Note 1: <br />CITY OF ELK RIVER, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />DECEMBER 31, 2000 <br />SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES •- CONTINUED <br />C. Basis of Accountina (Continued) <br />The modified accrual basis of accounting is used by all governmental fund types and agency <br />funds. Under the modified accrual basis of accounting, revenue is recognized when susceptible to <br />accrual (i.e., when it becomes both measurable and available). "Available" means collectible <br />within the current period or soon enough thereafter to be used to pay liabilities of the current <br />period. The government considers property taxes as available if they are collected within 60 days <br />after year end. Special assessments are recognized as revenue as the principal amount is <br />collected. Substantially all other sources of revenue are accrued including interest, charges for <br />services and local gravel and solid waste taxes. Fines, permits and licenses are not susceptible to <br />accrual because generally they are not measurable until realized in cash. <br />Expenditures are generally recorded when the related fund liability is incurred except principal and <br />interest on general long-term debt which are recorded as fund liabilities when due and prepaid <br />items which provide benefit to periods beyond the current year. <br />Proprietary funds are accounted for using the accrual basis of accounting. Their revenue is <br />recognized when it is earned, and their expenses are recognized when they are incurred. The <br />City applies all applicable FASB pronouncements issued on or before November 30, 1989 in <br />accounting and reporting for its proprietary operations. <br />Fixed assets are recorded in the proprietary funds at historical cost. Depreciation is charged as <br />an expense against operations and accumulated depreciation is reported on proprietary fund <br />balance sheets. Depreciation has been provided over the estimated useful lives using the <br />straight-line method. The estimated useful lives are as follows-, <br />Buildings 25 - 50 years <br />Plant and Production 5 - 50 years <br />Collection and Distribution 20 - 50 years <br />Equipment, Furniture and Fixtures 5 - 20 years <br />The preparation of general purpose financial statements in conformity with generally accepted <br />accounting principles require management to make estimates and assumptions that affect certain <br />reported amounts and disclosures. Accordingly, actual results could differ from those estimates. <br />•s - <br />Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual <br />appropriated budgets are adopted for the general and some special revenue funds, which is <br />further explained in Note 13. All annual appropriations lapse at fiscal year end. Project -length <br />financial plans are adopted for all capital projects funds. <br />The City follows these procedures in establishing the budgetary data reflected in the financial <br />statements: <br />Prior to January 1, the budget is adopted by the City Council. <br />2. Formal budgetary integration is employed as a management control device during the <br />year for the General Fund and some Special Revenue Funds. <br />3. All budget amendments are presented to the City Council for approval. <br />13 <br />