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CITY OF GENT LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Gem Lake (the City), Minnesota have been prepared in conformity with U.S. generally accepted accounting principles as applied to. governmental units by the Governmental Accounting Standards Board (GASB). The following is a summary of the significant accounting policies.. A. Financial Reporting Entity As required by U,S. generally accepted accounting principles; the. financial statements of the reporting entity include those of the City of Gem Lake and its component units._A component unit is a legally separate entity for which the primary government is. financially accountable, or for which the exclusion of the component unit would render the financial statements of the primary government misleading. The criteria used to determine if the primary government. is financially accountable for a component include whether or not the primary government appoints the voting majority of the potential component unit's board, is able to impose its will on the potential component unit; is in a relationship; of financial bianefit.or burden with the potential component unit, or is fiscally depended upon by the. potential component unit. Based on these criteria, there are no organizations considered to be component units of the City. B. Basic Financial Statements 1. Government -Wide Statements The government -wide financial statements (i:e., the statement of net assets and the statement of activities) display information about the primary government and Its.. component units. These statements. include the financial activities of the overall City government. Eliminations have been made. to minimize the double -counting of internal activities. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges to external parties for support. In the government -wide statement of net assets, both the. governmental and business -type activities columns: (a) are. presented on a consolidated basis by column; and (b) are reported on a full accrual, economic resource. basis, which recognizes all long-term assets and receivables as well, as long-term deist and obligations. The. City's net :assets are reported in three parts: (1) invested in capital assets, net of related debt; (2..) restricted net `assets; and .(3). unrestricted. net. assets. The City first utilizes restricted resources.to finance qualifying. activities. (14)