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CITY OF GEM LAKE,. MINNESOTA. <br />NOTES TO BASIC FINANCIAL STATEMENTS <br />DECEMBER 31, 2011 <br />NQTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br />D. Budgets <br />Budgets are adopted on a basis consistent with U.S. generally accepted accounting <br />principles. An annual appropriated budget is adopted for the. General Fund. Budgeted <br />expenditure appropriations lapse at year-end. <br />E. Cash and Investments <br />Cash and investment balances from all funds are pooled and invested to the extent <br />available in investments authorized by Minnesota. Statutes. Earnings from investments <br />are allocated to individual funds on the basis. of the fund's equity in the cash and. <br />investment pool.. <br />The City provides temporary advances to funds that have insufficient cash balances by <br />means of an advance from another fund shown as interfund receivables in the <br />advancing fund in the governmental fund financial statements, and an interfund payable <br />in the fund with the deficit, until adequate resources are received. These interfund <br />payables are eliminated for statement of net assets presentation, <br />Investments are stated at fair .value as of the balance sheet date. Interest earnings are <br />accrued at the balance sheet date. <br />For purposes of the statement of cash flows. the Proprietary Fund considers all highly <br />liquid investments with a maturity of three months or less when purchased to be cash <br />equivalents. All of.the cash and investments allocated to the proprietary fund types have <br />original maturities of 90. days or less. Therefore, the. entire balance.in such. fund types is <br />considered cash equivalents. <br />F. Prepaid Expenses <br />Certain payments to vendors reflect costs applicable to future accounting periods and <br />are recorded as prepayments. Prepaid items are reported using the consumption <br />method and recorded as an expense or expenditure at the. time of consumption. That <br />Portion of the relevant funds' balances equal to material prepaid items has been <br />reserved.. <br />G. Property Tax: Credits <br />Property taxes on. homestead property (as defined by state statutes) are partially <br />reduced by property tax. credits. These credits are paid to the City by the state in lieu of <br />taxes levied against. homestead property.. The state remits. these credits through <br />installments each year: These credits are recognized as revenue by the. City at the. time <br />of collection. r <br />