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CITY OF PARIS, TEXAS Notes to Financial Statements (Continued) September 30, 2025 I. Summal°w_of Sigtaificant.,Accounfipg,.Policies (Continued) H. Revenues and Expenditures/Expenses (Continued) 3. Compensated Absences The City recognizes a liability for compensated absences for leave time that (1) has been earned for services previously rendered by employees, (2) accumulates and is allowed to be carried over to subsequent years, and (3) is more likely than not to be used as time off or settled (for example, paid in cash to the employee) during or upon separation from employment. Based on the criteria listed, five types of leave qualify for liability recognition for compensated absences — vacation, sick leave, holidays, attendance holidays, and compensatory time. The liability for compensated absences is reported as incurred in the government -wide and proprietary fund financial statements. A liability for compensated absences is ,recorded in the governmental funds only if the liability has matured because of employee resignations or retirements. The liability for compensated absences includes salary -related benefits, where applicable. Vacation Benefits, Holidays, Attendance Holidays, Compensatory Time, and Sick Leave for Civil Service Employees — The City's policy permits employees to accumulate earned but unused benefits, which are eligible for payment at the employee's current pay upon separation from employment. Sick Leave for Non -Civil Service Employees — The City's policy permits employees to accumulate earned but unused sick leave. All sick leave lapses when employees leave employment of the City and, upon separation from service, no monetary obligation exists. However, a liability for the estimated value of sick leave that will be used by employees as time off is included in the liability for compensated absences. 4. Proprietary Funds Operating and Nonoperating Revenues and Expenses Proprietary Funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the water and sewer enterprise fund are charges to customers for sales and services. The water and sewer fund also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting new customers to the system. Operating expenses for enterprise funds include the cost of sales and service, administrative expenses, and depreciation/amortization on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. I. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. J. Recent Accounting Pronouncements Adopted During fiscal year 2025, the City adopted the following Governmental Accounting Standards Board (GASB) Statements: GASB Statement No. 101, Compensated Absences. The objective of this statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition guidance under a unified model and by amending certain previously required disclosures. GASB Statement No. 102, Certain Risk Disclosures. The objective of this statement is to provide users of government financial statements with essential information about risks related to a government's vulnerabilities due to certain concentrations or constraints. This Statement defines a concentration as a lack of diversity related 41