2. Summary of Significant Accounting Policies:

A. All Funds:

Grants:

Federal grants and assistance awards made on the basis of entitlement periods are recorded as in-
tergovernmental receivables and revenues when entitlement occurs. All other Federal reimbursement type
grants are recorded as intergovernmental receivables and revenues when the related expenditures, or ex-
penses, are incurred.

Retirement Costs:

Substantially all State employees participate in one of seven State retirement systems (see Note 15).
The State also provides retirement benefits to teachers and certain other employees of its political subdivi-
sions. The State funds a substantial portion of its retirement costs at the time the benefits become payable to
the participants instead of during the periods of participant employment. For the year ended June 30, 1980,
retirement expenditures for governmental fund types represent amounts paid during the current fiscal year
and amounts accrued for payment in the ensuing fiscal year. The excess amounts of actuarially determined
retirement costs over the amounts recorded as expenditures are carried in the long-term obligations account
group. For proprietary fund types, retirement costs have been provided on the accrual basis predicated on ac-
tuarial valuations. The excess of retirement costs provided over amounts funded is carried in the proprietary
fund types' balance sheets.

Employee Benefit Costs:

Substantially all expenditures for pension, health and Federal Social Security benefits of governmental
fund types, including approximately $163 million of expenditures applicable to teachers and other employees
of political subdivisions, are reported as personnel and retirement expenditures in the general fund. Mate-
rial benefit costs applicable to proprietary fund types are reflected as expenses in the proprietary funds.

Intrafund and Interfund Transactions:

Significant transfers of financial resources between agencies and activities included in the same funds,
which are recorded as revenue by the transferee and expenditures or expense by the transferor, have been
eliminated.

Transfers of revenues from funds authorized to receive them to funds authorized to expend them have
been recorded as operating transfers in the financial statements.

B. Governmental Fund Types, Expendable Trust and Agency Funds:

Basis of Accounting:

The accounts of the general, special revenue, debt service, capital projects, expendable trust and agency
funds are maintained and reported using the modified accrual basis of accounting. Under the modified ac-
crual basis of accounting, revenues and assets are recognized when measurable and available to finance op-
erations during the year or liquidate liabilities existing at the end of the year; expenditures and liabilities
are recognized when obligations are incurred as a result of receipt of goods and services. Modifications to the
accrual basis of accounting include:

• Self assessed taxes, principally income and sales taxes, are recognized as receivables and revenues in
the period to which they apply subject to their availability with appropriate allowances for uncollecti-
ble amounts.

• Interest on long-term obligations reflected in the long-term obligations account group is recognized in
the debt service fund when it becomes payable.

• Inventories of materials and supplies are recorded as expenditures when purchased.

• Obligations for employees' vested annual leave and sick leave are recorded as expenditures when
paid.

• Encumbrances, represented by executed and unperformed purchase orders and contracts which are
approved by the Department of Budget and Fiscal Planning, are recorded as reservations of fund bal-
ance as of the end of the fiscal year.

Investments:

Investments are stated at cost, adjusted for amortization of premium and accretion of discounts, plus ac-
crued income. Such basis approximates market. Short term investments aggregating $548,068,018 at June

14