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CITY OF GEAR LAKE,.MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DEC EMBER 31, 2010 NOTE 1 suMMARY CF SIG NIFIC.ANT ACCOUNTING POLICIES. (CONTINUED) D. Budgets Budgets are adopted on a basis consistent with U.S. generally. accepted accounting principles. 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 fund's equity in the cash and investment pool. The City provides temporary advances to funds that have insufficient cash.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 assets presentation. Investments are stated at fain 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 Ahree 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 Expenses 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 reserved. G. Property Tax Credits Property taxes on homestead property (as defined by State Statutes) are partially .reduced. by.property tax credits... These credits are paid to the City by the state in lieu of taxes levied against homestead property. The state remits these credits through installments each. year. These .credits are recognized as revenue by the City at the time of collection. (17)