02-02-11 Regular Meeting of the La Porte Area Water Authority

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A. Reportins Entity (Continued) The La Porte Area Water Authority is considered a component unit of the City of La Porte, Texas, by virtue of meeting the criteria noted above. The primary factor in determining component unit status is that the Authority provides approximately 86% of its services for the exclusive benefit of the City of La Porte. The Authority's financial operations are included as an Enterprise Fund in the City's Comprehensive Annual Financial Report as a blended component unit. The City of La Porte is referred to as "Primary Government" throughout the Authority's financial statements. B. Fund Accounting GASB allows special purpose governments engaged only in business -type activities to present only the financial statements required for Enterprise Funds. For the Authority, basic financial statements and required supplementary information consist of the Management's Discussion and Analysis (MD &A), Enterprise Fund financial statements and notes to financial statements. The operations of the Authority are recorded in an Enterprise Fund. Enterprise Funds are used to account for operations (a) that are financed primarily through user charges; or (b) where the governing body has decided that determination of net income is appropriate. The Enterprise Fund is a proprietary fund type. C. Basis of Accounting Enterprise Funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are presented on the statement of net assets in a classified format to distinguish between current and long -term assets and liabilities. Net assets are presented in three components: invested in capital assets, net of related debt; restricted; and unrestricted. Enterprise Fund operating statements present increases (e.g., revenues), decreases (e.g., expenses) and changes in net total assets. Enterprise Funds are accounted for using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized at the time liabilities are incurred. D. Cash Equivalents For purposes of the statement of cash flows, the Authority considers cash held in demand accounts and all short-term investments with maturity at date of purchase of three months or less to be cash equivalents. (continued) 11