How many categories of fund balance are recognized in governmental accounting?

In governmental accounting, fund balances are categorized into five distinct classifications, which are essential for understanding the nature of the resources available for spending and their constraints. These categories are:

1. Nonspendable: This category includes funds that are not expected to be spent, such as inventories or prepaid items. These resources are locked into specific uses and cannot be readily converted into cash.

2. Restricted: Funds in this category are subject to external restrictions imposed by creditors, grantors, or laws, limiting their use. For example, funds received for specific purposes, like grant funds for a particular project, would be classified as restricted.

3. Committed: This classification refers to funds that are constrained for specific purposes by formal action of the government’s highest decision-making authority. For instance, a government might designate certain amounts for future projects or reserve them for emergencies through a formal resolution.

4. Assigned: Assigned fund balances are those that the government intends to use for specific purposes but are not restricted or committed. They are set aside by the governing body's intent or policy rather than through formal action.

5. Unassigned: This category includes all funds that do not fall into the above classifications and are available for any general