02-12-13 Regular Meeting of the La Porte Area Water Authority

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LA PORTE AREA WATER AUTHORITY EXHIBIT B-4 NOTES TO THE FINANCIAL STATEMENTS (continued) Note 2 - Summary of Significant Accounting Policies (continued) B. Fund Accounting 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 a maturity at date of purchase of three months or less to be cash equivalents. E. Physical Facilities and Depreciation Fixed assets, which consist of a water production and distribution system, are shown at original cost. Interest paid during construction of facilities, if any, is also included in this cost. Depreciation has been provided for the Authority's water production and distribution system using the straight-line method over a 30-year estimated useful life. Note 3 - Cash and Cash Equivalents Cash and cash equivalents represent the Authority's equity interest in the City's consolidated cash and cash equivalents account consisting of demand accounts and short-term investments with a maturity at date of purchase of three months or less. State statutes require that all funds in depository institutions be covered by federal depository insurance and/or be secured in the manner provided by law for security of funds. Cash and cash equivalent balances held by the City were entirely covered by federal depository insurance or security as required at September 30, 2012. At year end a portion of the Authority's cash and temporary investments were restricted as follows: Restricted for retirement of current debt service liablities and reserve requirements per bond covenents $ 695,199 Total Restricted Cash and Temporary Investments $ 695,199 14