6235 - FUND BALANCE
A "fund balance" is created or increased when fund revenues exceed fund expenditures for a fiscal period. Correspondingly, a fund’s balance is decreased when fund expenditures exceed fund revenues. The balance sheet accounts identify the assets that belong to a fund, such as cash or a grant payment receivable, and what liabilities it owes, such as accounts payable to a supplier. The difference between the fund’s assets and liabilities equals the "fund balance." A positive fund balance represents a financial resource available to finance expenditures of the following fiscal period.
Administrators and board members need to understand what a fund balance is and its importance in budgeting decisions. A common misconception is that fund balance is a cash account, and therefore corresponds to the District’s bank balance. As discussed above, fund balance represents the fund’s total assets minus its liabilities (what a fund owns minus what it owes). Cash is an asset, but it usually is not a fund’s only asset. The fund may also have liabilities, such as accounts payable amount due to a supplier, which could result in a decrease in fund cash when they are paid off.
The Board recognizes the need for carrying an operating reserve in the General Fund to:
Provide adequate working capital sufficient to meet the District’s cash-flow requirements, thus minimizing any cash-flow (short-term) borrowing during the annual operating cycle;
Function as a safeguard to fund unanticipated expenses that the District might incur or to fund unrealized revenue which may occur but shall not be considered available to meet recurring operational expenses;
Demonstrate fiscal responsibility resulting in a high credit rating, which will help to reduce District borrowing costs.
In recognition of these needs, the Board of Education shall continually strive to develop operating budgets that will add sufficient funds each year to the operating fund balance that will maintain a minimum of 20% of total operating expenses in the fund balance.
Should the year-end unaudited fund balance of the school district fall below 20% of that year’s unaudited operating expenses, the Board shall allocate funds as necessary to the fund balance to return the balance to 20% within the five (5) succeeding budget years.
If revenues are greater than anticipated and/or expenditures are less than budgeted in the current fiscal year, these excess monies shall be applied toward the District’s fund balance for the subsequent fiscal year.
An alternative to adding to the fund balance: If such revenues are greater or expenditures are less than anticipated, such resources can be applied to a projected budget deficit in the following year by a majority vote of the school board.
The district administrator, working with the bookkeeping department, shall report yearly on the District’s exact cash balance to the Board of Education and to the public.
The available General Fund balance at the end of the fiscal year shall be apportioned among the reserved fund balance and the unreserved-designated fund balance for the operation of the subsequent year or years. The purpose of this policy is to establish a key element of the financial stability of the Durand-Arkansaw School District ("the school district") by setting guidelines for fund balance. Unassigned fund balance is an important measure of economic stability. It is essential that the school district maintain adequate levels of unassigned fund balance to mitigate financial risk that can occur from unforeseen revenue fluctuations, unanticipated expenditures, and similar circumstances. The fund balance also provides cash flow liquidity for the school district’s general operations.
Background – Fund balance refers to the difference between assets and liabilities in the governmental funds balance sheet. This information is one of the most widely used elements of state and local government financial statements for analysis. One central importance of the credit reviews performed by municipal bond analysts is; fund balance information also is used by oversight bodies, Federal, state, county, and local legislators to assess the financial health of an organization. Additionally, financial statement users examine fund balance information to identify the available liquid resources that can be used to repay long-term debt, reduce property taxes, add new educational programs, expand existing programs, or enhance the financial position of the school district. GASB has found that its usefulness and the value of fund balance information provided is significantly reduced by misunderstandings regarding the message that it conveys, and the inconsistent treatment and financial reporting practices of governments. In March 2009, in order to improve how fund balance information is reported and enhance its decision-usefulness, GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions.
Definitions of Fund Equity – A fund’s equity is generally the difference between its assets and its liabilities. Fund Balance – An accounting distinction is made between the portions of fund equity that are spendable and non-spendable. These are broken down into five categories:
Nonspendable Fund Balance
Includes amounts either not in spendable form or legally or contractually required to be maintained intact. This would include inventory, prepaid, and non-current receivables such as long-term loans and notes receivable, and property held for resale (unless the proceeds are restricted, committed, or assigned). This also includes amounts that are legally or contractually required to be maintained intact (principal balance of endowments and permanent funds).
Restricted Fund Balance
Reflects the same definition as restricted net assets on the government-wide Statement of Net Assets: constraints placed on the use of amounts are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or imposed by laws through constitutional provisions or enabling legislation.
Committed Fund Balance
Includes amounts that are committed for specific purposes by formal action of the school board. Amounts classified as "committed" are not subject to legal enforceability like restricted fund balance; however, those amounts cannot be used for any other purpose unless the school board removes or changes the limitation by taking the same form of action it employed to previously impose the limitation. The action to commit fund balances must occur prior to year-end; however, actual amounts can be determined in the subsequent period.
Assigned Fund Balance
Amounts that are intended by the school district to be used for specific purposes, but are neither restricted nor limited, should be reported as assigned fund balance. The intent should be expressed by the school board itself or a subordinate high-level body or official possessing the authority to assign amounts to be used for specific purposes in accordance with policy established by the school board. This would include ANY activity reported in a fund other than the General Fund that is not otherwise restricted more narrowly by the above definitions. The school district is not allowed to assign balances that result in a residual deficit.
Unassigned Fund Balance
Includes any remaining amounts after applying the above definitions (amounts not classified as non-spendable, restricted, committed, or assigned). Planned spending in the subsequent year’s budget would be included here and can no longer be described as "designated" unless formally committed or assigned. Special rules exist for using this classification in funds other than the General Fund. In funds other than the General Fund, unassigned only used if the balance is negative; therefore, the General Fund is the only fund that will report a positive unassigned balance.
Committed Fund Balance
The Board is the highest level of decision-making authority for the Durand-Arkansaw School District. The formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the school board at a school board meeting. The resolution must either be approved or rescinded, as applicable, prior to the last day of the fiscal year for which the commitment is made. The amount subject to the constraint may be determined in the subsequent period.
Assigned Fund Balance
The Board of the Durand-Arkansaw School District has authorized the District’s District Administrator and/or the Director of Finance as the officials authorized to assign fund balance to a specific purpose as approved by this fund balance policy.
Order of Expenditure of Funds
When multiple categories of fund balance are available for expenditure (for example, a construction project is being funded partly by a grant, funds set aside by the school district, and unassigned fund balance), the Durand-Arkansaw School District will start with the most restricted category and spend those funds first before moving down to the next category with available funds.
Amended 8/24/11
Revised 3/20/19
Revised 3/26/25
T.C. 8/20/25
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