What are the main fund balance classifications for restricted/unrestricted, and how is 'restricted' created?

• A. Restricted (external/legal/donor-imposed constraints), Committed, Assigned, Unassigned, and Nonspendable; restricted is created by external mandates or law.
• B. Restricted and Unrestricted; restricted is created by internal management decisions.
• C. Capital, Special, Debt Service, and General; restricted is created by budget appropriations.
• D. Current, Noncurrent; restricted is created by voter approval.

Answer: (A)

Fund balance classifications in governmental accounting are about how much of a fund’s resources are restricted or available for use. The five spendable categories are restricted, committed, assigned, unassigned, and nonspendable. Restricted funds are those whose use is limited by external sources—such as donors, grantors, or laws—that require the money to be used for a specific purpose. That external constraint is what makes resources fall into the restricted category.

Understanding the others helps put it in context: committed resources are constrained by formal action of the government’s highest decision‑making authority, assigned resources are designated by management for a specific purpose, unassigned resources are the general, unrestricted balance (primarily in the general fund), and nonspendable resources are not in spendable form (like inventories or prepaids).

The key point is that restricted means external constraints exist. The other options mix in internal budget actions, fund types, or asset classifications, which don’t correctly describe how fund balance classifications are defined or created.