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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2012 37 Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. BASIC FINANCIAL STATEMENTS (CONTINUED) 2. Fund Financial Statements (Continued) Area and Unit Charge Fund The area and unit charge fund accounts for the collection of water and sewer unit charges to be used for debt payments and construction of infrastructure. Traffic Signal Fund The traffic signal charge fund accounts for for costs associated with cons truction of traffic signals in the City. The City reports the following major proprietary funds: Water Fund The water fund accounts for customer water service ch arges that are used to finance water operating expenses. Sewer Fund The sewer fund accounts for customer water service ch arges that are used to finance water operating expenses. Additionally, the City reports the following fiduciary funds: Agency Funds - to account for assets held as an agent for individuals, private organizations, other governmental units, and/or other funds. The City’s agency f und accounts for pass-through contractor’s deposits relating to prospective developments. C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The government-wide and proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting . Agency funds, which are included in the Fiduciary Funds, do not have a measurement focus. Revenues are recorded when earne d, and expenses are recorded when a liability is incurred, regardle ss of the timing of related cash flow s. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. The City considers all reve nues to be available if th ey are collected within 60 days after the end of the current period. Property and othe r taxes, licenses, and interest are all considered to be susceptible to accrual. Expenditu res are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, co mpensated absences, and claims and judgments, which are recognized as expenditures to the extent that they have matured. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources.