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PIEDMONT AREA MENTAL HEALTH, DEVELOPMENTAL DISABILITIES AND SUBSTANCE ABUSE AUTHORITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 7. Compensated Absences The vacation policies of the Authority provide for the accumulation of up to thirty (30) days earned vacation leave with such leave being fully vested wheri earned. For the Authority's government-wide fund, an expense and a liability for compensated absences and the salary-related payments are recorded as the leave is earned. The sick leave policy of the Authority provides for an unlimited accumulation of eamed sick leave. Sick leave does not vest, but any accumulated sick leave up to 20 days will be paid to employees retiring at age 55 or older with at least 15 years of service. The current portion of accumulated sick leave is not considered material; therefore, no expenditure or liability has been reported in the governmental funds. 8. Net Assets/Fund Balances Net Assets Net assets in government-wide financial statements are classified as invested in capital assets, net of related debt; restricted; and unrestricted. Restricted net assets represent constraints on resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or imposed by law through state statute. Fund Balances In the governmental fund financial statements, reservations or restrictions of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. State law [G.S. 159-13(b)(16)] restricts the appropriation of fund balance to an amount not to exceed the sum of cash and investments minus the sum of liabilities, encumbrances and deferred revenues arising from cash receipts as those amounts stand at the close of the fiscal year preceding the budget year. The governmental fund types classify fund balances as follows Reserved Reserved by State statute -portion of fund balance, in addition to the reserve for encumbrances, which is not available for appropriation under State law [G.S. 159-8(a)]. This amount is usually comprised of accounts receivable that is not off-set by deferred revenues. Reserved for prepaid expenses -portion of fund balance not available for appropriation as a result of expenses' payments paid in advance to be charged to future operating periods. (20) ~~