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CITY OF RAMSEY, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 1993 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Measurement Focus and Basis of Accounting (continued) other financing sources) and decreases (expenditures and other financing uses) in net current assets. Fixed assets used in governmental fund type operations and long -term liabilities expected to be financed from governmental funds are accounted for in two account groups, as they are concerned only with the measurement of financial position, and are not involved with measurement of results of operations. The Proprietary Funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and liabilities associated with the operation of these funds are included on the balance sheets. Fund equity is segregated into contributed capital and retained earnings components. Operating statements present increases (revenues) and decreases (expenses) in net total assets. Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Basis of Accounting A fund's basis of accounting determines when a transaction or event is recognized in the fund's operating statement. All governmental, and expendable trust and agency fund types use the modified accrual basis of accounting. Under this basis of accounting, transactions are recorded in the following manner: 1. Revenue Recognition - Revenue is recognized when it becomes measurable and available. "Measurable" means that amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Property tax and special assessment revenue is generally considered as available if collected within 60 days after year -end. State revenue is recognized in the year in to which it applies according to Minnesota Statutes. Federal revenue is recorded in the year in which the related expenditure is made. Other revenue is considered available if collected within one year. 2. Recording of Expenditures - Expenditures are generally recorded when a liability is incurred; however, expenditures are recorded as prepaid for approved disbursements or liabilities incurred in advance of the year in which the item is to be used. Interest and principal expenditures in the Debt Service Funds are recognized on their due dates. -14-