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Park Center Water District Notes to the Financial Statements December 31, 2005 and 2004 1 Summary of Significant Accounting Policies A RepoKing Entity Because the District has been established for the sole purpose of providing water service, its general fund is relatively insignificant in comparison to the enterprise fund. Therefore, for financial reporting purposes, the District shows its basic financial statements as one fund. The Park Center Water District operates under the regulations pursuant to the Colorado Revised Statutes that designate a Board of Directors to act as the governing authority. The District provides potable water to the people within the boundaries of the District, which is located near Canon City, Colorado. The accompanying statements of the District have been prepared in confornuty with accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The financial statements include all organizations, activities and functions for which the District if financially accountable. Component units are legally separate entities for which the District is financially accountable. Financial accountability is defined as the ability to appoint a voting majority of the organization's governing body and either (1) the District's ability to impose its will over the organization or (2) the potential that the organization will provide a financial benefit to, or impose a financial burden on, the District. Using these criteria, the District has no component units. B Measurement Focus, Basis of Accounting, and Financial Statement Presentation The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Enterprise funds are used to account for operations financed and operated similar to businesses using the accrual method of accounting. Enterprise fund revenues are recognized in the period in which they are earned. Expenses are recognized in the period in which they are incurred. Private-sector standards of accounting and financial reporting issued prior to December 31, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The District has elected not to follow subsequent private-sector guidance. C Fund Accounting The District uses one fund to maintain its fuiancial records during the year. A fund is defined as a fiscal and accounting entity with aself-balancing set of accounts. The District uses only an enterprise fund. D Use of Estimates Preparation of the financial statements of the District in confornuty with generally accepted accounting principles requires the use of management's estimates, primarily related to the depreciable lives of its property and equipment. The nature of those estimates, however, is such that variances in actual results are generally immaterial. E Risk Management The District is exposed to various risks of loss from torts; theft of, damage to, and destruction of assets; business interruption; errors and omissions; employee injuries and illnesses; and natural disasters. Commercial insurance coverage is purchased for