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CITY OF GEM LACE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE I 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 Band's principal ongoing operations. The principal operating revenue of the. C.ity'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 definitio6.,. Fe reported as nonoperating revenues and expenses. 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 ,#Yie' 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 .fromanother; fund shown as interfund receivables in the advancing fund in the governrr entai.fur d financial statements, and an interfund payable in the fund with, ke= 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;l}glance sheet date. For purposes of:lkie statement of cash flows the Proprietary Fund considers all highly H661 d investmen s' with a maturity of. three months or less when purchased to be ;cash equivalents.,A[['of the cash and investments allocated to the proprietary fund types have originai:`rinaturities 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)