2021-COH - DWS Financial Statements and Supplementary Information With Independent Auditor's Report

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County of Hawaii Department of Water Supply (A component unit of the County of Hawaii, State of Hawaii) NOTES TO FINANCIAL STATEMENTS June 30, 2021 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (13) Operating Revenues and Expenses - Revenues and expenses are distinguished between operating and nonoperating items. Operating revenues generally result from providing services in connection with the Department's principal ongoing operations. The principal operating revenues of the Department are fees charged to customers for providing water services. Operating expenses include the costs associated with providing water services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as nonoperating revenues and expenses. (14) Contributions in Aid of Construction - Contributions in aid of construction represent cash or capital assets received by the Department to aid in the construction of infrastructure assets. It also includes the forgiveness of principal due on state revolving fund loans that were used to finance the costs of infrastructure needed to maintain the water system. Contributions in aid of construction are recognized when they are accepted by the Water Board and when all applicable eligibility requirements have been met. (15) Deferred Outflows of Resources and Deferred Inflows of Resources - Deferred outflows of resources represent a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expense) until that time. Deferred inflows of resources represent an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time. (16) Use of Estimates - The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, deferred inflows of resources and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of capital assets, valuation allowances for trade receivables, valuation of noncash contributions in aid of construction, accrued workers' compensation, pensions and postretirement healthcare and life insurance benefits.Actual results could differ from those estimates. 20