Restricted net position for a proprietary fund is

Chapter 5: Financial Reporting — Fund Balance/Net Assets

Fund Financial Statements

Within governmental funds, equity is reported as fund balance; proprietary and fiduciary fund equity is reported as net position. Fund balance and net position are the difference between fund assets plus deferred outflows of resources and liabilities plus deferred inflows of resources reflected on the balance sheet or statement of net position.

Because of the current financial resources measurement focus of governmental funds, fund balance has historically been considered a measure of available expendable financial resources. This is a particularly important measure in the general fund because it reflects the primary functions of the government and includes both state aid and local tax revenues. However, GASB recently issued Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions, which requires fund balance for governmental funds to be reported in classifications that clarify the constraints on how resources can be spent (as well as the sources of those constraints). This is a significant departure from the decades-long approach of classifying fund balance more from an "available for appropriation" perspective.

The well-known classifications of reserved and unreserved fund balance (with subcomponents of designated and undesignated amounts) are being replaced with five separate components of fund balance, as follows:

• nonspendable fund balance;
• restricted fund balance;
• committed fund balance;
• assigned fund balance; and
• unassigned fund balance.

Nonspendable Fund Balance
Nonspendable fund balance represents the amount of fund balance within a governmental fund that cannot be spent either because

• it is not in spendable form (most commonly evidenced by inventory, prepaid assets, and long-term portions of receivables); or
• it is legally or contractually required to remain intact (most commonly evidenced by the nonexpendable principal in a permanent fund).

Restricted Fund Balance
Restricted fund balance should be reported to reflect legally enforceable constraints that have been placed on resources within total fund balance. As directly stated in GASB Statement 54, the most common examples of such constraints would be those that are

• externally imposed by creditors (e.g., debt covenants), grantors, contributors, or laws or regulations of other governments; or
• imposed by law through constitutional provisions or enabling legislation.

Restricted fund balance primarily represents those resources within fund balance for which constraints exist that cannot be changed or redirected by management. Portions of fund balance that were previously reported as reserved fund balance are primarily evidenced by the total of the new classifications of nonspendable fund balance and restricted fund balance, but that should not be considered an absolute parallel.

Committed Fund Balances
Committed fund balance represents formal constraints that have been placed on resources within fund balance through formal action of the government's highest decisionmaking authority. For school districts, the highest decisionmaking authority is typically the governing board. The creation of this type of constraint is evidenced by formal governing board actions (e.g., legislation, resolution, or ordinance) that can only be changed by an equivalent action. Also, any formal action by the governing board must have been taken by the end of the reporting period (i.e., such actions cannot be enacted retroactively), although the exact amount subject to constraints can be determined after the end of the reporting period and up until the time that the financial statements are issued.

Assigned Fund Balance.Assigned fund balance represents intentional constraints placed on resources within fund balance eitherby the governing board or its appointees. The creation of these constraints does not require formal action, although formal action to enact is not prohibited. Regardless of the action that gives rise to a classification of assigned fund balance, formal action is not required to reverse that classification. For example, appropriating a portion of fund balance as a potential resource for the next year's budget might be initiated by formal action (e.g., passage of the budget ordinance), but no action is required if that portion of fund balance is not actually used during the next fiscal year. Therefore, the amount of fund balance identified as a potential resource for next year's budget would be reported as assigned fund balance at the end of the reporting period (limited to an amount no greater than the projected excess of expected expenditures over expected revenues). Again, an assignment does not require any formal action to initiate and will most commonly represent management's intent of use for resources included within fund balance. Assignments may not create any deficit in unassigned fund balance.

Assigned fund balance is also the "default" fund balance classification for all governmental funds except the general fund after nonspendable, restricted, and committed fund balance amounts have been identified. The definitions of the special revenue, capital projects, debt service, and permanent funds dictate that the resources within those funds represent, at a minimum, assigned portions of fund balance.  After the nonspendable, restricted, and committed amounts of fund balance have been identified for these funds, if the remaining amount of fund balance represents a deficit, that amount must be reported as unassigned fund balance. The unassigned fund balance classification, as defined below, is used for special revenue, debt service, capital projects, or permanent funds only if the residual amount of fund balance is negative.

Unassigned Fund Balance.Unassigned fund balance is the residual classification for the general fund after the amounts for the nonspendable, restricted, committed, and assigned classifications have been identified.  For the general fund, unassigned fund balance may represent either a positive or negative balance.  As noted above, this classification may be used for the other governmental fund types only if their respective residual balances are negative.

For financial reporting purposes, the nature of nonspendable, restricted, committed, and assigned  components of fund balance (for any governmental fund) may be separately identified on the balance sheet or reported in the aggregate, with details disclosed in the notes to the financial statements.

Within proprietary and fiduciary fund statements of net position, balances are classified into the following three components:

• Net investment in capital assets represents the net amount invested in capital assets (original cost, net of accumulated depreciation and net of capital-related debt).
• Restricted represents the amount of net position for which limitations have been placed by creditors, grantors, contributors, laws, and regulations. For example, school districts that account for food services within an enterprise fund may have restrictions related to certain proceeds or commodities imposed by the USDA. Internal actions through enabling legislation (which is legally enforceable) and constitutional provisions may also lead to restricted net position.
• Unrestricted represents the amount of net position that is not restricted or invested in capital assets, net of related debt.

Government-Wide Financial Statements: Statement of Net Position

The difference between an entity's assets plus deferred outflows of resources and its liabilities plus deferred inflows of resources represents its net position. Net position has the following three components:

• net investment in capital assets;
• restricted net position; and
• unrestricted net position.

Exhibit 5 defines each component.

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