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