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CITY OF RAMSEY, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 1995 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization The City operates under the "Home Rule Charter City" form of government as defined in the State of Minnesota Statutes. The City Council, composed of an elected mayor and four elected councilmembers, exercises legislative authority and determines all matters of policy. The accounting policies of the City conform to generally accepted accounting principles as applicable to governmental units. B. Reporting Entity As required by generally accepted accounting principles, these financial statements include the City of Ramsey (the primary government) and its component units. Component units are legally separate entities for which the primary government is financially accountable, or for which the exclusion of the component unit would render the fmancial statement of the primary government misleading. The criteria used to determine if the primary government is fmancially accountable for a component unit include whether or not the primary government appoints the voting majority of the potential component's board, is able to impose its will on the potential component unit, or is fiscally depended upon by the potential component unit. Based on these criteria, the Ramsey Economic Development Authority (EDA) is included as a component unit of the City. Because the EDA's five- member board is made up of Ramsey's Mayor and councilmembers, its financial data has been blended with that of the City (i.e., reported as though its funds were funds of the City.) C. Basis of Statement Presentation The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self - balancing accounts that comprise its assets, liabilities, equities, revenues, and expenditures or expenses as appropriate. The various funds are grouped by type in the financial statements. The following fund types and account groups are used by the City: 1) Governmental Fund Types a) General Fund - The General Fund accounts for all revenues and expenditures of the City which are not accounted for in other funds. Revenues are primarily derived from property taxes, licenses, permits, fees and revenues from the state. Expenditures are for general government services including police and fire protection, parks and recreation, and general administration. b) Special Revenue Funds - The Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. They are also used to finance specified activities as required by law or administrative regulation. c) Debt Service Funds - The Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long -term debt principal, interest, and related costs. d) Capital Project Funds - The Capital Project Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by Proprietary Funds). —10--