Fund balances are divided into categories that show how much freedom an organisation has when using its resources. These categories help clarify whether funds are completely flexible or tied to specific purposes. They also make financial reporting clearer and more transparent, especially for governments and nonprofits.

Unassigned fund balance is the most flexible category. It represents resources that are not restricted or committed, so they can be used for general operations or unexpected needs. This category typically appears only in the general fund.

Assigned fund balance includes amounts set aside for a specific use, but not through formal governing action. A finance officer or committee might assign funds for upcoming projects, planned purchases, or next year’s budget support.

Committed fund balance involves resources reserved for a purpose through a formal vote or resolution by the governing body. Because the commitment must be made before the end of the fiscal year, it carries more weight than an assignment and requires another formal action to remove.

The restricted fund balance is the most limited category. These funds must be used only for purposes set by external rules, such as laws, grant agreements, or donor requirements. Organisations cannot change how these funds are used.

Nonspendable fund balance represents items that cannot be converted into cash, such as inventories or prepaid expenses. While still part of the total fund balance, these amounts aren’t available for spending.

Together, these categories help organisations manage resources responsibly and keep financial decisions aligned with policy and legal expectations.