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CITY OF CENTERVILLE, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City ofCenterviHe is a statutory city operating in accordance with the "Optional Plan An form of government, as defined in the State of Minnesota statutes. Under this plan the government of the City is directed by a Council composed of an elected Mayor and four elected Council Members. The Council exercises legislative authority and detemrines aU matters of policy. The Council appoints personnel responsible for the proper administration of an affairs relating to the City. The City has considered aU potential units for which it is financiuIIy accountable, and other organizations for which the nature and significance of their relationship with the City are such that exclusIon would cause the City's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in detennining fmancial accountability. These criteria include appointing a voting majority of an organization's governing body, and (l) 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 [mancial burdens on the primary government. The City does Dot have any component units. B. Measurement Focus, Basis of Accounting and Basis of Presentation The accounts of the City are organized and oper:ated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with self-balancing sets of accounts. Fund accQunting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with f1nance- related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to aCCO"WIt for certain assets and liabilities of the governmental funds not recorded directly in those funds. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the year in which the resources are measurable and become available. Non-exchange transactions, in which the City receives value without directly giving equal value in return, include property taxes, grants, entitlement and donations. On an accrual basis, revenue from property taxes is recognized in the year for which the tax is levied. Revenue from grants, entitlements and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is fIrst permitted, matching requirements, in which the City must provide local resources to be used for a specified purpose, and ex.penditure requirements, in which the resources are provided to the City on a reimbursement basis. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.o Deferred revenue arises when assets are recognized before revenue recognition criteria bave been satisfied_ Grants and entitlements received before eligibility requirements are met are also recorded as deferred revenue. On the modified accrual basis, receivables that will not be collected within the available period have also been reported as deferred revenue.