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CITY OF CENTERVIlLE, MINNESOTA NOTES TO FINANCIAL STAlEMENTS DECEMBER 31, 2003 Note 1: SUMMARY OF SIGNlFlCANT ACCOUNTING POLICIES A. Reporting Entity The City of eenterville operates under the "Optional Plan A" 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 determines all matters of policy. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. The City bas considered all potential units for which it is financially accountable, and other organizations for which the nature and sigoificance of their relatiouship- 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) bas set forth criteria to be considered in de!ennining fmancial accountability. These criteria include appointing a voting majority ofan organization's governing body, and (I) the ability of the primary government to iropose its will on that organization or (2) the potential for the organization to provide specific benefits to, or iropose specific financial burdens on the primary government. The City does not have any component units. - B. Government-Wide and Fund Flnanctal Statements The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on: all of the nonfiduciaty activities of the primary government and its component units. For the most part, the effect of interfund activity bas been removed from these statements. Governmental activities. which normally are supported by taxes and intergovemmental revenues, are reported separately from business-type aetivities. which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. DirecJ expenses are those that are clearly identifiable with a specific function or segment. Program revenues inclnde I) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privilegeS provided by a given function or segment and 2) grants and contnbutions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary fimds. Major individual governmental fimds and major individual enterprise fimds are reported as separate columns in the fund financial statements. C. Measurement Foeu>, Basis of Accounting, and FInancial Statement Presentation The government-wide financial statements are reported using the economic resources measurementfocus and the accrual basis of aecounting. as are the proprietary fund financial stalements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all elig>bility re'l.uirements imposed by the provider have been met. Governmental fund financials1aternents are reported using the current fi7U11lCial resources measurement focus and the modijied accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are colleCl1ble within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose. the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable aod available only when cash is received by the government.