What defines "Non-spendable" in terms of fund balance classification?

"Non-spendable" in fund balance classification refers specifically to resources that cannot be spent because of legal or contractual restrictions. These restrictions may arise from laws, regulations, or agreements that dictate how certain funds can be used, effectively making them unavailable for general spending purposes.

Examples of non-spendable amounts could include inventory or pre-paid expenses, which are resources already committed and cannot be liquidated or redirected for other uses. This classification is crucial because it helps clarify the actual availability of financial resources in a governmental entity’s budget, ensuring that stakeholders accurately understand the liquidity and fiscal capacity of the government.

In contrast, funds in the bank could represent available and spendable resources; earmarked funds suggest a commitment to specific projects but may still be spent if the governing body decides to reallocate them; while discretionary funds are altogether considered spendable, as they can be utilized at the local government’s direction without restrictions.