Which of the following accurately describes a restricted fund balance?

A restricted fund balance is characterized by limitations that are imposed by external sources, which can include laws, regulations, or agreements. This means that the resources in a restricted fund can only be used for specific purposes, often tied to designated revenues or specific restrictions placed upon those funds. For example, if a government receives grant money meant specifically for infrastructure projects, those funds must be categorized as restricted and cannot be diverted to cover general expenditures.

The other options do not accurately reflect the nature of a restricted fund balance. The discretionary aspect of spending does not apply here, as restricted fund balances cannot be spent at the discretion of the governing body because their use is limited by specific external constraints. Similarly, the idea of reserving funds for future infrastructure needs might suggest a planning intent but does not capture the essence of restrictions imposed by external authorities. Lastly, the notion of allowing budget flexibility is not applicable since restricted funds have specific purposes and limitations that prevent flexibility in budget allocation. Thus, option B clearly aligns with the definition and understanding of a restricted fund balance within governmental accounting.