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NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) S. Deferred Outflows/Inflows of Resources In addition to assets and liabilities, statements of financial position, or balance sheets, will sometimes report deferred outflows or inflows of resources. These separate financial statement elements represent a consumption or acquisition of net assets that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) or an inflow of financial resources (revenue) until then. Unavailable revenue arises only under a modified accrual basis of accounting and, therefore, is only reported in the governmental funds financial statements. The governmental funds report unavailable revenue from two sources: property taxes and special assessments. These amounts are deferred and recognized as inflows of resources in the period they become available. NOTE 2 — DEPOSITS AND INVESTMENTS A. Components of Deposits and Investments Cash and investments at year-end consist of the following: Deposits $ 370,565 Investments 1,646,585 Total $ 2,017,150 B. Deposits In accordance with Minnesota Statutes, the City maintains deposits at financial institutions which are authorized by the City Council, including checking accounts and certificates of deposit. The following is considered the most significant risk associated with deposits: Custodial Credit Risk — In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may be lost. Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety bond, or collateral. The market value of collateral pledged must equal 110 percent of the deposits not covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated "A" or better; revenue obligations rated "AA" or better; irrevocable standard letters of credit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The City has no additional deposit policies addressing custodial credit risk. At year-end, the carrying amount of the City's deposits was $370,565, while the balance on the bank records was $377,435. At December 31, 2025, all deposits were fully covered by federal deposit insurance, surety bonds, or by collateral held by the City's agent in the City's name. -25-