5.1. 2019 FINAL Audited Financial Statements

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CITY OF PEQUOT LAKES, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 24 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A fund is considered major if it is the primary operating fund of the City or meets the following criteria:  Total assets and deferred outflows, liabilities and deferred inflows, revenues, or expenditures/expenses of that individual governmental or proprietary fund are at least 10 percent of the corresponding total for all funds of that category or type; and  Total assets and deferred outflows, liabilities and deferred inflows, revenues, or expenditures/expenses of that individual governmental or proprietary fund are at least 5 percent of the corresponding total for all governmental and proprietary funds combined. The City reports the following major governmental funds: The General Fund is the primary operating fund of the City and is always classified as a major fund. It is used to account for all activities except those legally or administratively required to be accounted for in other funds. The Fire Department Fund is a special revenue fund used to account for funds received by the City for fire department expenses. The City has elected to make this fund major in the current year. The Highway 371 Project Fund is a capital projects fund used to account for financial resources to be used for the acquisition or construction of capital improvements on road turnbacks within the City. The City reports the following major proprietary funds: The Proprietary Funds are used to account for business-type activities provided to the general public. These activities are financed primarily by user charges and the measurement of financial activity focuses on net income measurement similar to the private sector. The City maintains Water and Sewer Proprietary Funds. The City reports the following nonmajor fund types: The Special Revenue Funds account for funds received by the City with a specific purpose. The Debt Service Funds account for the accumulation of financial resources for the payment of interest and principal on general long-term debt of the City other than debt service payments made by proprietary funds. Tax Levies and special assessments are used for the payment of principal and interest on the City’s indebtedness. 1.C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Measurement focus is a term used to describe “which” transactions are recorded within the various financial statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus applied. Measurement Focus On the government-wide Statement of Net Position and the Statement of Activities, both governmental and business-type activities are presented using the economic resources measurement focus as defined in the second bullet point on the following page.