Accounts and Notes Receivable:

An allowance for doubtful receivables is provided for estimated losses expected to be incurred in collection.
The estimated losses are based on historical collection experience and a review of the status of existing
receivables.

Inventories:

Inventories are stated at the lower of cost, using the first-in, first-out method, or market.

Property, Plant and Equipment-
Property, plant and equipment are stated principally at cost at date of acquisition or fair value at date of

donation in the case of gifts. Consistent with generally accepted accounting principles for colleges and

universities, depreciation is not provided for the cost of plant assets.

Operating Transfers from State's General Fund:

A substantial portion of the higher education fund's current unrestricted expenses, including current
payments for retirement costs and fringe benefits, are funded through appropriations from the general fund at
the time the expenses are encumbered or paid. The current year retirement funding exceeded the
expense,including amortization of unfunded liabilities over 40 years and interest thereon, by approximately
$5,226,000; this excess reduced the liability for retirement costs recorded in the higher education fund. Accrued
retirement costs are expected to be funded principally through future State appropriations.

3. Budgeting and Budgetary Control:

The Maryland Constitution requires the Governor to submit to the General Assembly an annual balanced
budget for the following fiscal year. This budget is prepared and adopted for the following five Budgetary Funds:

General Fund:

The General Fund is the fund in which all general transactions of the State are recorded, unless otherwise
directed to be included in another fund.

Special Fund:

The Special Fund includes all of the transportation activities of the State (except for the Maryland
Transportation Authority), fishery and wildlife funds, shared taxes and payments of debt service on general
obligation bonds, whereas the GAAP Special Revenue Fund includes only the operations (other than debt
service) of the Maryland Department of Transportation Trust Fund.

Federal Fund:

The Federal Fund is the fund in which principally all grants from the Federal government are recorded.

Higher Education Funds:

Current Unrestricted Fund: Unrestricted revenue used or available for use in carrying out the current
operations of the State's colleges and universities is accounted for in the current unrestricted fund.

Current Restricted Fund: Restricted gifts, grants and other restricted resources are accounted for in the
current restricted fund.

In addition to the annual budget, the General Assembly adopts authorizations for the issuance of general
obligation bonds and the expenditures of the funds obtained thereby are accounted for in the capital projects
fund. Because capital projects fund authorizations are not part of the annual budget, capital projects fund
activities are not presented in the Combined Statement of Revenues, Expenditures and Encumbrances, Other
Sources and Uses of Financial Resources and Changes in Fund Balances — Budget and Actual — Budgetary
General, Special, Federal, Current Unrestricted and Current Restricted Funds.

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