The difference between a fund's assets and liabilities is referred to as its fund balance.

Fund balance represents the net cash after all revenues have been deposited and all expenses have been paid for "cash basis" entities. It represents how much cash you have in the fund, just like your chequebook at the end of the month.
One of the primary reasons for establishing a fund balance policy is to provide enough cash flow to meet operating needs. Local government revenues are frequently cyclical. Many jurisdictions, for example, rely heavily on property tax revenues. Property owners must pay this revenue twice a year, on April 30 and October 31. Similarly, a water utility fund may see a large portion of its revenue during the summer irrigation and watering season. However, these organisations must meet their financial obligations all year, which would be difficult, if not impossible, without a certain minimum fund balance.

Fund balance is a term commonly used in governmental and nonprofit accounting to describe the difference between assets and liabilities in a fund. It represents the net resources available for spending. The fund balance is classified into several categories:

1. Nonspendable: Resources that cannot be spent (e.g., inventories, prepaid expenses).
2. Restricted: Funds that are restricted by external parties or legislation for specific purposes.
3. Committed: Funds that are designated for specific purposes by the highest level of decision-making authority within the organization.
4. Assigned: Resources intended for specific purposes but not formally committed.
5. Unassigned: Available resources not earmarked for any specific purpose and can be used at the organization’s discretion.

Understanding fund balance helps in assessing financial health and planning for future expenditures.