What term expresses the equity of governmental funds (assets minus liabilities)?

• A. Fund Balance
• B. Fund
• C. Appropriation
• D. Budget Document

Answer: (A)

Fund balance is the measure of equity in governmental funds because these funds focus on current financial resources, so equity is what remains after subtracting liabilities from assets. This difference shows the net resources available for future spending and is reported on the governmental funds balance sheet as assets minus liabilities. Fund balance is often shown with components that indicate constraints on how resources can be used (such as nonspendable, restricted, committed, assigned, and unassigned), reflecting management’s intent and legal or policy limitations. The other terms refer to different concepts: a fund is the separate fiscal entity, an appropriation is the legal authorization to spend, and a budget document is a planning tool. In government-wide statements or for proprietary funds, the corresponding measure of equity is net position, not fund balance.