Under Governmental Accounting Standards Board (GASB) standards, governmental fund financial statements report fund balance, the residual of the fund's reported financial resources and obligations. State and local governments use the current-financial-resources measurement focus and modified accrual basis for these statements.
To calculate fund balances, add assets and deferred outflows of resources, then subtract liabilities and deferred inflows of resources. Deferred outflows and deferred inflows remain separate financial statement elements, rather than being relabeled as assets and liabilities.
Government-wide financial statements use the economic-resources measurement focus and accrual basis, reporting net investment in capital assets, restricted net position and unrestricted net position. Committed, assigned and unassigned fund balances are governmental fund classifications; they are not additional government-wide net position components.
State and local governments reconcile governmental fund balance sheets to government-wide net position, and statements of revenues, expenditures and changes in fund balances to government-wide activities. Those reconciliations incorporate differences such as capital assets and general long-term debt, which governmental fund balance sheets exclude.
Common mistakes
- Counting the same resources twice. In Example 1, adding the fallback assignment to the existing commitment produces dollars, exceeding supported fund balance.
- Using gross assets. Assets of $950,000 require deductions of $170,000 liabilities and $80,000 deferred inflows before classification begins.
- Ignoring the commitment date. January action cannot support the comparison's $100,000 committed balance; the separate assignment evidence determines its alternative treatment.
Bottom line
- Governmental funds report five fund balance classifications; government-wide statements report three net position components.
- Nonspendable includes resources outside spendable form and intact principal, subject to the purpose-based exception for long-term receivables and resale property.
- Restrictions arise from external or qualifying legal constraints; commitments require timely formal action by the highest decision-making authority.
- Assignments require appropriate authority and cannot create or increase negative unassigned fund balance.
Exam shortcut
The preparer identifies whether supplied fund balance is before or after closing, then reconciles it to operating activity and assets plus deferred outflows less liabilities and deferred inflows. Each resource pool enters the allocation once. For a long-term receivable or resale property, the permitted use of proceeds determines whether nonspendable applies. The governing action date and decision maker establish commitment eligibility.
The full lesson (about 3,441 words, 23 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- III.C2
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