What does nonspendable fund balance include?

What does nonspendable fund balance include?

• A. Amounts that can be spent freely.
• B. Amounts that cannot be spent because they are in nonspendable form (inventories, prepaids) or because the principal of an endowment must be preserved.
• C. Revenue that is not yet collected.
• D. Funds that are locked by legislation.

Answer: (B)

Nonspendable fund balance is resources that cannot be spent currently because of their form or because the principal of certain funds must be preserved. This includes items like inventories and prepaid items, which are not in a spendable cash form, and the corpus of an endowment fund that must be kept intact rather than spent. The idea is that these amounts are technically not available for appropriation in the near term, even though they exist as assets. Other scenarios don’t fit nonspendable: amounts that can be spent freely are considered spendable; revenue that hasn’t been collected yet isn’t fund balance but either a receivable or deferred inflow of resources; funds restricted by legislation are constrained but still represent spendable resources for their intended purpose, not nonspendable items.

Nonspendable fund balance is resources that cannot be spent currently because of their form or because the principal of certain funds must be preserved. This includes items like inventories and prepaid items, which are not in a spendable cash form, and the corpus of an endowment fund that must be kept intact rather than spent. The idea is that these amounts are technically not available for appropriation in the near term, even though they exist as assets.

Other scenarios don’t fit nonspendable: amounts that can be spent freely are considered spendable; revenue that hasn’t been collected yet isn’t fund balance but either a receivable or deferred inflow of resources; funds restricted by legislation are constrained but still represent spendable resources for their intended purpose, not nonspendable items.