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City of Lino Lakes, Minnesota <br />Management Report <br />Enterprise (Utility) Fund <br />The water and sewer operations reflect retained earnings of $837,555 and $669,899, <br />respectively. Retained earnings should not be equated with fund balance. The Utility operations <br />are financed by user fees which are billed and collected only after the services are provided. This <br />creates a timing difference between payment of expenses and collection of service charges (i.e., <br />accounts receivable). Additionally, certain costs are paid in advance (prepaid expenses) and/or <br />supply items are purchased in advance (i.e., inventories). These items create a timing difference <br />between payment of expenses and cost recovery through service changes. Those items <br />(commonly referred to as Working Capital needs) are noncash assets. <br />In addition, the Retained Earnings of the Utility Operation include the fixed assets of such <br />operations which are depreciated and charged (annually) against income. Such undepreciated <br />fixed assets are also a noncash asset. The following schedule has been prepared to illustrate the <br />effects of working capital needs and fixed assets upon the total equity of the City's water and <br />sewer operations: <br />Water Sewer <br />Cash and investments $536,402 $364,095 <br />Working capital needs: <br />Accounts receivable 445,928 274,172 <br />Prepaid expenses 1,422 31,174 <br />Payables (315,543) (39,483) <br />Long -term payable - bonds (4,165,000) <br />Purchased fixed assets - net 4,334,346 39,941 <br />Retained earnings $837,555 $669,899 <br />Page 57 <br />a <br />