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CITY OF ELK RIVER, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />DECEMBER 31, 2000 <br />Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED <br />D. Budqets (Continued) <br />4, Reported budget amounts are as originally adopted or as amended by Council <br />approved supplemental appropriations and budget transfers. Supplemental budgetary <br />appropriations were not material in: 2000 in relation to the original budget appropriati:on, <br />E. Encumbrances <br />Encumbrance accounting is used for the General Fund. Encumbrances are recorded when: <br />purchase orders are issued but are not considered expenditures until liabilities for payments are <br />incurred. Encumbrances are reported as a reservation of fund balance on the balance sheet. <br />Encumbrances do not lapse at the close of the fiscal year but are carried forward, as reserved fund <br />balance until liquidated. <br />F. Cash and Investments <br />Cash and investments include demand deposits and short-term investments. The City invests <br />cash balances from all funds, to the extent available, in certificates of deposit and other authorized <br />investments. Investments are carried at fair value. <br />G. Cash and Cash Equivalents <br />For purposes of the statement of cash flows of the Enterprise Funds all cash and investments with <br />a maturity of three months or less when purchased are considered to be cash equivalents. The <br />restricted assets in the Enterprise Funds are investments with maturities exceeding the three <br />month period. <br />H. Inventories <br />Inventories are valued at cost, which approximates market, using the first-in/first-out (FIFO) <br />method. <br />Prepaid Items <br />Payments made to vendors for service that will benefit periods beyond December 31, 2000 are <br />recorded as prepaid items. <br />Restricted Assets <br />Certain assets of the Electric Enterprise Fund are set aside for emergency and construction in <br />accordance with Commission resolutions. <br />K. Fixed Assets <br />General fixed assets are not capitalized in the funds used to acquire or construct them. Instead, <br />capital acquisition and construction are reflected as expenditures in governmental funds, and the <br />related assets are reported in the general fixed assets account group. All purchased fixed assets <br />are valued at cost where historical records are available and at an estimated historical cost where <br />no historical records exist. Donated fixed assets are valued at their estimated fair market value on <br />the date received. <br />14 <br />