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City of Lino Lakes, Minnesota <br />Management Report, Page 32 <br />As shown above, the water and sewer operations reflect retained earnings of $118,627 and <br />$103,722, respectively. Retained earnings should not be equated with fund balance. <br />The Utility operations are financed by user fees which are billed and collected only after the <br />services are provided. This creates a timing difference between payment of expenses and <br />collection of service charges (i.e., accounts receivable). Additionally, certain costs are paid in <br />advance (prepaid expenses) and/or supply items are purchased in advance (i.e., inventories). <br />These items create a timing difference between payment of expenses and cost recovery through <br />service changes. Those items (commonly referred to as Working Capital needs) are noncash <br />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 fixed <br />assets are also a noncash asset. The following schedule has been prepared to illustrate the effects <br />of working capital needs and fixed assets upon the total equity of the City's water and sewer <br />operations: <br />Water Sewer <br />Cash and investments $114,772 $6,919 <br />Working capital needs: <br />Accounts receivable 89,179 103,092 <br />Prepaid expenses 1,412 20,252 <br />Due from other governments 145 3,980 <br />Payables (35,948) (34,818) <br />Long -term payable - bonds (1,060,000) 0 <br />Purchased fixed assets - net 1,009,067 4,297 <br />Retained earnings $118,627 , $103,722 <br />