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restrictions involving parties outside the financial reporting entity. One common <br />example is amounts reserved for encumbrances, which represent contracts for <br />goods or services with outside parties still outstanding at the end of the year. <br />Reservations also are commonly used to report legal restrictions arising from state <br />statutes or grant requirements placed on the use of specific resources. <br />Unreserved Fund Balance <br />The part of fund balance not identified as reserved is the unreserved fund balance. The <br />unreserved fund balance may, in turn, be subdivided into designated and undesignated <br />portions. <br />Designated Fund Balance <br />Whereas GAAP dictates the criteria for reserved fund balance, fund balance designations <br />represent management's intended use of resources. Fund balance designations may be <br />established to indicate management's tentative plans for financial resource utilization in a <br />future period, such as for general contingencies or for equipment replacement. Such <br />designations reflect tentative managerial plans or intent and should be clearly <br />distinguished from that which is reserved. Designations should be supported by actual <br />plans approved by either the governing body or an appropriate officer. Such plans or <br />intent are subject to change and may never be legally authorized or result in expenditures. <br />Expressed another way, designations are a government's self-imposed limitations on the <br />use of available current financial resources. <br />Unreserved fund balance is designated for a local government's intended use of current <br />available financial resources. The focus on current financial resources is unique to <br />governmental funds. Accordingly, designations are reported on the face of the balance <br />sheet only in connection with governmental funds. Designations should be reported as <br />part of the unreserved fund balance designated for ... , or disclosed parenthetically or in <br />the notes to the financial statements.2 GAAP does not allow for any equivalent equity <br />designation to be used for government-wide financial reporting or for proprietary fund <br />and fiduciary fund financial reporting. <br />Undesignated Fund Balance <br />The unreserved undesignated fund balance consists of current resources available for <br />which there are no government self-imposed limitations or set spending plan. Although <br />there is generally no set spending plan for the undesignated portion, there is a need to <br />maintain a certain funding level. Undesignated fund balance is commonly used for <br />emergency expenditures not previously considered. In addition, the resources classified <br />as undesignated can be used to cover expenditures for revenues not yet received. <br />z Codification of Governmental Accounting and Financial Reporting Standards § 1800.144. <br />Reviewed: January 2008 2 <br />Revised: NA 2007-1022 <br />