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PENROSE W A TER DISTRICT <br /> 340 Grant Street sum— Penrose,CO 81240 <br /> Notes to Financial Statements <br /> December 31,2011 <br /> 1. Summary of Significant Accounting Policies <br /> Reporting Entity <br /> The Penrose Water District operates under the regulations pursuant to the Colorado Revised Statutes that designate <br /> a Board of Directors to act as the governing authority. The District provides potable water to the people within the <br /> boundaries of the District,which is located in Fremont County near Callon City,Colorado. Because the District has <br /> been established for the sole purpose of providing water service, it has no general fund. For financial reporting <br /> purposes,the District shows its basic financial statements as one enterprise fund. <br /> The accompanying statements of the District have been prepared in conformity with accounting principles generally <br /> accepted in the United States of America(GAAP) as applicable to governmental units. The financial statements <br /> include all organizations, activities and functions that comprise the District. Component units are legally separate <br /> entities for which the District is financially accountable. Financial accountability is defined as the ability to appoint <br /> a voting majority of the organization's governing body and either(1)the District's ability to impose its will over the <br /> organization or (2) the potential that the organization will provide a financial benefit to, or impose a financial <br /> burden on,the District. Using these criteria,the District has no component units. <br /> Measurement Focus, Basis of Accounting, and Financial Statement <br /> Presentation <br /> Enterprise funds are used to account for operations financed and operated similar to businesses using the accrual <br /> method of accounting. The financial statements are reported using the economic resources measurement focus and <br /> the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is <br /> incurred,regardless of the timing of the related cash flows. Grants and similar items are recognized as revenue as <br /> soon as all eligibility requirements imposed by the provider have been met. <br /> Private-sector standards of accounting and financial reporting issued prior to December 31, 1989, generally are <br /> followed to the extent that those standards do not conflict with or contradict guidance of the Governmental <br /> Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance <br /> for their business-type activities and enterprise funds,subject to this same limitation. The District has elected not to <br /> follow subsequent private-sector guidance. <br /> Use of Estimates <br /> Preparation of the financial statements of the District in conformity with generally accepted accounting principles <br /> requires the use of management's estimates,primarily related to the depreciable lives of its property and equipment. <br /> The nature of those estimates,however,is such that variances in actual results are generally immaterial. <br /> Encumbrances <br /> The District does not employ a purchase order system; therefore, encumbrances are not reflected in the financial <br /> statements. <br /> 11 <br />