Question

5. Identify and describe the 5 categories of net assets for governmental fund balances.

Answer 1

Nonsuspendable fund balance
Nonspendable fund balance represents the amount of fund balance within a governmental fund that cannot be spent either because

• it is not in spendable form (most commonly evidenced by inventory, prepaid assets, and long-term portions of receivables); or
• it is legally or contractually required to remain intact (most commonly evidenced by the nonexpendable principal in a permanent fund).

Restricted fund balance

This fund balance is reported as restricted when constraints placed on the use of resources are either:

• Externally imposed by creditors (such as debt covenants), grantors, contributors, or laws and regulations of other governments.
  –OR–
• Imposed by law through constitutional provisions or enabling legislation.

Committed fund balance

Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the state’s highest level of decision-making authority (the Legislature) are reported as committed fund balance.

Those committed amounts cannot be used for any other purpose unless the Legislature removes or changes the specified use by taking the same type of action it employed to previously commit those amounts.

Assigned fund balances

Amounts constrained by the agency’s intent to be used for specific purposes that are neither restricted nor committed are reported as assigned fund balance.

Assigned fund balance represents intentional constraints placed on resources within fund balance eitherby the governing board or its appointees. The creation of these constraints does not require formal action, although formal action to enact is not prohibited. Regardless of the action that gives rise to a classification of assigned fund balance, formal action is not required to reverse that classification. For example, appropriating a portion of fund balance as a potential resource for the next year's budget might be initiated by formal action (e.g., passage of the budget ordinance), but no action is required if that portion of fund balance is not actually used during the next fiscal year. Therefore, the amount of fund balance identified as a potential resource for next year's budget would be reported as assigned fund balance at the end of the reporting period (limited to an amount no greater than the projected excess of expected expenditures over expected revenues). Again, an assignment does not require any formal action to initiate and will most commonly represent management's intent of use for resources included within fund balance. Assignments may not create any deficit in unassigned fund balances.

Unassigned fund balances

This is the residual classification for the general fund. The net resources of the general fund in excess of nonspendable, restricted, committed and assigned fund balances (a surplus fund balance) are classified as unassigned fund balance.

In all other governmental funds, the excess of nonspendable, restricted and committed fund balances over total fund balance (a deficit fund balance) is classified as unassigned.