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Park Center Water District Notes to the Financial Statements claims arising from such matters. Settled claims have not exceeded this commercial coverage in any of the three preceding years. F Encumbrances The District does not employ a purchase order system; therefore, encumbrances are not reflected in the fmancial statements. G Statement ojCash Flows The District considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. H Fixed Assets and Depreciation Enterprise fund fixed assets are capitalized in the fund accounts because the fixed assets are used in the production of water sold. Depreciation is provided, for those assets subject to depreciation, over the estimated useful lives using the straight-line method. The estimated useful lives are as follows: Office and Shop Building 40 years Source of Supply 15 - 40 years Treatment Plant 5 - 50 years Distribution System 10 - 40 years Other 3 - 5 years Interest costs incurred on debt issued for construction is capitalized during the period of construction. During the years ended December 31, 2005 and 2004 $15,853 and $17,379 respectively was capitalized. I Reclassifications Various Items for 2004 have been reclassified to conform to 2005 presentation. J Net Assets Net assets present the difference between assets and liabilities in the statement of net assets. Net assets invested in capital assets are reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are legal limitations imposed on their use by external restrictions by creditors, grantors, laws, or regulations of other governments. K Inventory Inventories of materials and supplies are recorded on the balance sheet at the lower of cost or market using the first-in, first- out method of accounting. L Property Tax Revenue Recognition Property taxes attach as an enforceable lien on property as of January 1. Taxes are levied November 15 and are due and payable to the County Treasurer in full by April 30 or in two equal installments due February 28 and June 15 of the ensuing year. Property taxes to be collected in 2006 are accrued as a receivable and the related deferred revenue recorded. Property tax revenue is recognized as income as it becomes measurable and available. M Budgetary Practices The District follows these procedures in establishing the budgetary data reflected in the financial statements: (1) In September the proposed budget is submitted to the District Board and a "Notice of Budget" is published stating that the proposed budget is on file for inspection.