What is the key difference between committed and restricted fund balances?

The key difference between committed and restricted fund balances lies in the nature of the constraints imposed on those balances. Committed fund balances are those that are constrained for specific purposes by formal action of the government entity's highest decision-making authority. This means that the commitments are self-imposed, based on decisions made by the government or its governing body.

On the other hand, restricted fund balances are those that are constrained by external sources, which could include laws, regulations, or agreements, and these restrictions are typically deemed mandatory. This distinction is crucial for financial reporting, as it informs users of the financial statements about the nature of the funds and how they can be used.

Understanding these differences aids government entities in proper financial management and reporting, ensuring clarity in budget planning and the allocation of resources.