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Expenditures are generally recognized under the modified accrual <br /> basis of accounting when obligations are incurred. The significant <br /> exceptions to this general rule include interest on long-term debt, <br /> accumulated vacation, sick pay and other employee benefits which <br /> are considered expenditures when paid. <br /> Nonexpendable Trust Funds are accounted for using the accrual basis <br /> of accounting. Their revenues are recognized when they are earned, <br /> and their expenses are recognized when they are incurred. <br /> D. Budget Requirement <br /> At the annual town meeting, the Finance Committee presents an oper- <br /> ating and capital budget for the proposed expenditures of the fiscal year <br /> commencing the following July 1. The budget, as enacted by the town <br /> meeting, also establishes that certain appropriations are to be funded <br /> by particular revenues. The original budget is amended during the fiscal <br /> year at special town meetings as required by changing conditions. In <br /> cases of extraordinary or unforeseen expenses, the Finance Committee <br /> is empowered to transfer funds from the Reserve Fund to a departmental <br /> appropriation. "Extraordinary" includes expenses which are not in the <br /> usual line, or are great or exceptional. "Unforeseen" includes expenses <br /> which are not foreseen as of the time of the annual meeting when appro- <br /> priations are voted. <br /> Departments are limited to the line items as voted at the town meeting. <br /> Certain items may exceed the line item budget as approved if it is for <br /> an emergency and for the safety of the general public. These items are <br /> limited by the Massachusetts General Laws and must be raised in the <br /> next year's tax rate. <br /> At year end, appropriation balances lapse, except for certain unexpended <br /> capital items and encumbrances which will be honored during the subse- <br /> quent year. <br /> Formal budgetary integration is employed as a management control <br /> device during the year for the General Fund. Effective budgetary control <br /> is achieved for all other funds through provisions of the Massachusetts <br /> General Laws. <br /> E. Assets. Liabilities and Fund Equity <br /> Cash and Cash Equivalents <br /> Deposits with financial institutions consist primarily of demand deposits, <br /> certificates of deposits and savings accounts. The Town maintains a <br /> cash and investment pool that is available for use by all funds. Each <br /> 9 <br />