What is included in the non-spendable fund balance?

The non-spendable fund balance category in governmental accounting includes assets that are not in a spendable form. This specifically refers to certain types of assets such as inventories and prepaid expenditures, which cannot immediately be converted into cash or used for general operations. These assets are necessary for the operations of the government, but they are not available for immediate use in budgetary spending.

For instance, inventories represent goods that a government entity has on hand for consumption or sale, while prepaid items indicate expenses that have been paid in advance but have not yet been incurred; both clearly illustrate assets that can't be utilized directly for current spending needs. Recognizing these assets as non-spendable ensures that financial statements accurately reflect the availability of resources for budgeting and financial planning purposes.