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CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL. STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus and Basis of Accounting (Continued.) Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and: expenses generally result from providing services and producing and delivering goods in connection .with a proprietary fund's principal ongoing operations. The principal operating revenue of the City's. enterprise funds are charges. to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as. nonoperating revenues and expenses. D. Budgets Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. An annual appropriated. budget is adopted for the General Fund. Budgeted expenditure appropriations lapse at year-end. E. Cash and Investments Cash and investment balances from all funds: are pooled and invested to the extent available in investments authorized by Minnesota Statutes. Earnings from investments are allocated to individual funds on the basis of the €und's equity in the cash and. investment pool. The City provides temporary advances to funds that have insufficient Gash balances by means of an advance from another fund shown as interfund receivables in the advancing fund in the governmental fund financial statements, and an interfund. payable in the fund with the deficit,. until adequate. resources are received. These interfund payables are -eliminated for statement of net position presentation.. Investments are stated at fair value. as of the balance sheet date.. Interest earnings are accrued at the balance sheet date. For purposes of the statement of cash flows the Proprietary Fund considers all highly liquid investments with .a maturity of three months or less. when purchased to be cash equivalents. All of the. cash and investments allocated to. the proprietary fund types have original maturities: of 90 days or less. Therefore, the entire balance in such fund types is considered cash equivalents. F. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepayments. Prepaid items are reported using the consumption method and recorded as an expense or expenditure. at the time of consumption. That portion. of the. relevant funds' balances equal to material prepaid items has been segregated as nonspendable. (16)