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CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, .201:5 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 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 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 ad . Nnds are pooled and invested to the extent available in investments authorized: by, Nlfhh6?sota Statutes. Eamings from investments are allocated to individual funds -°:on .,.f-61: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 _6rn another fund shown as i.nterfund receivables in the advancing fund. iri'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 far 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 iiqu d investments with a maturity of three months or less when purchased to be cash. equivalents. Al of the cash and investments allocated. to the proprietary fund types:heve original maturities: of 90 days or less. Therefore, the entire balance in such fund types is considered cmh equivalents. F. Prepaid iterns 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)