Page 54 - Southlake FY24 Budget

Basis of Accounting

The City of Southlake utilizes the modified accrual basis of accounting which is a method of accounting
for revenues and expenses when earned or incurred instead of when cash is received or spent.

Basis of Budgeting

The City of Southlake’s basis of budgeting for its major fund groups (General Fund, Utility Fund, Storm
Water Utility Fund, Southlake Parks Development Corporation Fund, Crime Control & Prevention District
Fund and Tax Increment Finance District Fund) and for all Special Revenue Funds is modified accrual, per
the Generally Accepted Accounting Principles (GAAP).

Revenues are budgeted according to when they are both measurable and available. Revenues are
considered to be available when they are collected within the current period, or soon enough thereafter
to pay liabilities of the current period. The City considers property taxes, franchise taxes, licenses, and
Budget Overview
interest associated with the current fiscal period susceptible to accrual if they are collected within 60 days
of the end of the current fiscal period. Only the portion of special assessments receivable due within the
current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other
revenue items are considered to be measurable and available only when cash is received.

Expenditures are budgeted according to when the liability is incurred, regardless of the timing of related
cash flow. The exceptions are debt service, compensated absences, claims and judgments, which are
budgeted as expenditures according to when the payments are due. The City’s basis of budgeting is the
same as the basis of accounting, as reflected in the City’s Annual Comprehensive Financial Report.

Fund Accounting
Funds are unique to governmental type agencies. In the corporate world, “Funds” do not exist. The
company receives revenues and writes checks to pay for its expenses and reports them for the company
as a whole. Governments handle this process differently.

The City of Southlake has over 50 funds with specific purposes which are defined by federal, state, or
local laws. They include the General Fund which is used for general City operations, the Utility Fund which
is used to support the City’s water, sewer, drainage, and solid waste service, and a multitude of Special
Revenue, Debt Service Funds, and Capital Project Funds. Simply stated, funds are set up like separate
companies which must operate under specific parameters.

For example, the City receives $0.02 of sales tax for every dollar spent in our city limits. One of those
pennies goes to the General Fund and can be spent on general operating costs, like supplies, salaries,
and general maintenance. The other penny is split between our Crime Control and Prevention District,
the Community Enhancement and Development Corporation, and the Southlake Parks Development
Corporation. These three units of the City of Southlake were voted on by the residents, but state law
determines how that money is spent. The City can only use it for the purposes outlined in the original
referendum presented to the voters, so the separate funds were set up to account for the revenues and
expenditures of each unit.

In another example, the City receives proceeds from bonds issued for various projects. The Official
Statement for a bond issue outlines how much money the City will receive, how that money will be
repaid, and how the money can be spent. This document is legally binding on City officials and is
enforced by federal, state, and local laws. If the Official Statement says we received $12,000,000 for
roadway improvements, City Council and management may not opt to spend it on equipment or supplies.

54 FY 2024 City of Southlake | Budget Book