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LCityof <br />Louisville FINANCIAL POLICIES <br />COLORADO . SINCE 1878 <br />Operating Budget <br />Policies <br />Policy Section: 5 <br />Adopted by Resolution No. , Series <br />Effective Date: <br />Purpose and Scope <br />The formulation of the annual operating budget, including the publication of the budget <br />document, is one of the most important financial activities that the City of Louisville undertakes <br />each year. The budget process provides a comprehensive plan to deliver efficient services to <br />residents and stakeholders of the City in a manner that aligns resources with the policies, goals, <br />mission, and vision of the City. This policy is intended to provide guidelines to assist in the <br />formulation of financial discussion and the broader implications of financial decisions. This <br />policy shall apply to all funds with an adopted budget. <br />Policies <br />5.1 Budgetary Basis of Accounting. The "basis of accounting" is a term used to describe the <br />timing of revenue and expenditure recognition. In other words, when the effects of <br />transactions or events should be recognized. In governmental accounting, the basis of <br />accounting used for financial reporting purposes, as required by generally accepted <br />accounting principles (GAAP), is not required for use in preparing a budget document. <br />Under GAAP, governmental funds are required to utilize a modified accrual basis of <br />accounting and proprietary funds (enterprise and internal service) are required to utilize a <br />full accrual basis of accounting for financial reporting purposes. The City of Louisville's <br />budgetary basis of accounting is a modified accrual basis for all fund types, including <br />proprietary funds. Some of the differences between the City's budgetary basis of <br />accounting and the GAAP basis of accounting for proprietary fund types are: <br />• Issuance of debt — budgeted as a revenue item, adjusted at year -end to a liability for <br />financial reporting purposes. <br />• Principal payment on debt — budgeted as an expense item, adjusted at year -end to a <br />reduction in the liability for financial reporting purposes. <br />• Capital acquisition — budgeted as an expense item, adjusted at year -end to an asset <br />acquisition for financial reporting purposes. <br />• Depreciation — not recognized for budgeting purposes, recorded at year -end as an <br />expense for financial reporting purposes. <br />28 <br />