Describe the concept of fund balance and the typical categories used in governmental accounting.

• A. Fund balance is the profit earned in the general fund.
• B. Fund balance is the total cash in the fund.
• C. Fund balance is the total cash on hand.
• D. Fund balance is the remaining assets minus liabilities, with categories nonspendable, restricted, committed, assigned, and unassigned.

Answer: (D)

Fund balance represents the resources available for future spending in a governmental fund, calculated as assets minus liabilities. It isn’t profit, nor is it simply cash on hand. The five categories show different levels of constraint on how those resources can be used: some assets are nonspendable because they can’t be spent (like inventories or prepaid items); some are restricted by external sources or laws; some are committed by formal action of the governing body; some are assigned by management intent to particular purposes; and the remaining in the general fund is unassigned, available for any purpose of the fund. The total fund balance is the sum of these categories and equals assets minus liabilities, providing a complete view of financial resources available for future spending.