from employers, federal revenue received and remittance of benefits to the unemployed, and is accounted
for on a flow of current financial resources measurement focus.

2. The pension trust funds, which reflect the transactions, assets, liabilities and fund equities of the State
administered retirement and pension systems, and is accounted for using the flow of economic resources
measurement focus.

3. Agency funds, which account for the receipt and disbursement of various taxes collected by the State for
distribution to the Federal government and political subdivisions, patient and prisoner accounts, amounts
withheld from employees payroll, amounts collected to pay medical insurance claims and amounts withheld
from employees and invested in the Deferred Compensation Plan as directed by the employee. The GASB
has adopted Statement Number 10 "Accounting and Financial Reporting for Risk Financing and Related
Insurance Issues," which becomes effective for fiscal years beginning after June 15,1993. The State plans
to implement Statement Number 10 during the fiscal year ending June 30, 1994. The State has not
completely analyzed the effects of this Statement and thus has not determined its impact on the financial
statements; however the State's self insured medical insurance program will no longer be reported in the
agency fund.

ACCOUNT GROUPS

Account groups are used to establish accounting control and accountability for the State's general fixed assets
and the unmatured principal of its general long-term debt and other long-term obligations of governmental fund
types. General fixed assets do not represent financial resources available for appropriation and expenditure, nor
does the unmatured principal of general long-term obligations require current appropriation and expenditure of
governmental fund financial resources.

General Fixed Assets Account Group:

General fixed assets acquired or constructed for use by the State in the conduct of its activities, other than
activities accounted for in the proprietary fund type and the higher education fund, are reflected in the general
fixed assets account group at the time of acquisition. The general fixed assets are stated at cost or estimated
historical cost. Donated fixed assets are recorded at their fair market value at the time donated. Depreciation is
not provided for general fixed assets. Infrastructure assets (excluding Maryland Transportation Authority),
consisting principally of highways, roads and bridges are not recorded in the general fixed assets account group.

General Long-Term Debt Account Group:

General obligation, transportation and Maryland Transportation Authority bonds payable, capital lease
obligations, accrued workers' compensation costs and accrued annual leave related to general governmental
activities are reflected in the general long-term debt account group.

HIGHER EDUCATION FUND

Transactions related to the financial activities of State higher education institutions are accounted for in the
higher education fund. The financial statements of this fund have been prepared in accordance with the American
Institute of Certified Public Accountants' Industry Audit Guide "Audits of Colleges and Universities", and
therefore, are presented as a discrete entity in a separate column in the combined balance sheet. This Fund
includes the combined activities of the University of Maryland System, St. Mary's College of Maryland, Morgan
State University and Baltimore City Community College.

2. Summary of Significant Accounting Policies:

A. All Funds:
Retirement Costs:

Substantially all State employees participate in one of several State retirement systems (see Note 17). The
State also provides retirement benefits to teachers and certain other employees of its political subdivisions.
Retirement expenditures for governmental fund types represent amounts contributed by the State for the fiscal
year. Retirement costs have been provided on the accrual basis predicated on actuarial valuations.

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