What distinguishes a 'restricted' fund balance from an 'assigned' fund balance?

• A. Restricted is constrained by external sources; assigned is constrained by the government’s own designation to a purpose.
• B. Assigned is constrained by external sources.
• C. They are interchangeable.
• D. Restricted is internally designated.

Answer: (A)

The main idea is who imposes the restriction on how the money must be used. Restricted fund balance is limited by external sources—things like grant terms, donor requirements, or laws that force the funds to be used for a particular purpose. Those external conditions bind how the money is spent and can only be released or spent in ways allowed by those external terms.

Assigned fund balance, on the other hand, is limited by the government’s own designation. The governing body or its designated official decides to set aside resources for a specific purpose through internal policies or the current budget. These constraints come from the government itself and can be changed by the government’s action, not by external requirements.

So, the essential difference is external versus internal constraints. It isn’t correct to say assigned funds are constrained by external sources, or that they’re interchangeable, or that restricted funds are internally designated.