What is a Fund Balance?

Government entities report equity in governmental and trust funds as fund balance. A fund balance operates similar to savings accounts and is the difference between governmental fund assets and liabilities reported on the balance sheet. Governmental and nonprofit accounting both uses the concept of fund accounting. In fund accounting, the entity is divided into subsets or funds, each with its own self-balancing set of accounts. A look at the various types of funds can lead …

…make up the loss in federal or state monies. A limitation on a government's taxing and spending powers as the result of the passage of voter's referendums can also affect the fund balance. If local or state government has unanticipated expenditures resulting from natural disasters will also affect the fund balance. There are many other things that can affect the fund balance that is why it is always best to have an unreserved fund balance.