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(1)

Villisca Municipal Power Plant

Notes to Financial Statements

December 31, 2003

Summary of Significant Accounting Policies

A.

Reporting Entity

The Villisca Municipal Power Plant is a component unit of the City of Villisca, Iowa, as determined by criteria specified by the Governmental Accounting Standards Board. The Power Plant is governed by a five-member board of trustees appointed by the City Council, which exercises oversight responsibility under this criteria.

B.

Fund Accounting

The accounts of the Power Plant are organized on the basis of funds, each of which is

considered to be a separate accounting accounted for by providing a separate set

entity.

The operations of each

of

self-balancing

accounts

which

fund are comprise

its receipts, disbursements and balances.

The various funds are classified

Enterprise

Funds

in

the

financial

statements.

Enterprise

Funds

are

utilized

as to

finance

and account for the

acquisition, operation and maintenance of governmental

facilities and services supported by user charges.

C.

Basis of Accounting

The Villisca Municipal Power Plant maintains its financial records on the basis of cash

receipts and disbursements and the financial statements of the Power Plant are

prepared accounts

on

that

basis.

The

cash

receivable, accounts payable

basis of accounting does not give and accrued items. Accordingly, the

statements accordance

do not present financial position and results of operations with U.S. generally accepted accounting principles.

of

the

effect to financial funds in

D.

Budgets and Budgetary Accounting

The Villisca Municipal Power Plant prepares a budget on the cash basis of accounting

and submits it to the City Council.

In accordance with the Code of Iowa, the City

Council annually adopts a budget on the

and

hearing

for

all

funds.

The

annual

cash basis following required public notice budget may be amended during the year

utilizing similar statutorily prescribed procedures.

Formal and legal budgetary control is based

upon

nine

major

classes

of

disbursements, known as functions, not by fund. These functions are public safety, public works, health and social services, culture and recreation, community and economic development, general government, debt service, capital projects and business type activities.

15

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