Enterprise Funds Reserved Retained Earnings:

Retained earnings of Maryland Environmental Service in the amount of $2,623,000 are reserved for
furtherance of program development activities as determined by the board of directors.

D. Higher Education Fund:
Basis of Accounting:

The accounts of the higher education institutions are maintained and reported on the accrual basis of
accounting except as explained below concerning the recognition of tuition and fees revenue and depreciation.

Fund Accounting:

The financial activities of the higher education institutions are recorded in funds which classify the various
transactions by specified activities or objectives. Fund balances of current restricted, loan and endowment funds
are reported as reserved for higher education programs and higher education general endowment funds.

Unrestricted revenue is accounted for in the current unrestricted fund. Restricted gifts, grants, endowment
income and other restricted resources are accounted for in the current restricted fund, loan funds, endowment
and plant funds. Revenue and expenditures are reported in the current restricted fund when financial resources
are used for the current operating purposes for which they have been provided. Transactions related to the
various student loan programs operated by the educational institutions are accounted for in loan funds. Resources
dedicated to the acquisition and investment in property, plant and equipment are accounted for in the plant funds.
To the extent current funds are used to finance plant assets, the amounts so provided are accounted for as (1)
expenditures, in the case of normal replacement of movable equipment and library books; (2) mandatory transfers,
in the case of required provisions for debt repayment and interest, and equipment renewals and replacements; and
(3) transfers of a nonmandatory nature in all other cases. General endowment funds are subject to the restrictions
of gift instruments requiring that the principal be invested in perpetuity and that only the income be utilized.

Student Revenues:

Student tuition and fees are fully recognized as revenues in the fiscal year in which the related courses or
activities are principally conducted. Student tuition and fees applicable to future courses and activities and
collected as of the end of the fiscal year are recorded as deferred revenue.

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:

A substantial portion of the higher education fund's current unrestricted and plant fund expenditures are
funded through appropriations from the general fund and capital projects fund, respectively, at the time the
expenditures are encumbered or paid.

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