A nonspendable fund balance refers to the portion of a fund's balance that cannot be spent due to its inherent nature, such as inventory or prepaid expenses. This classification is crucial in fund accounting as it ensures that certain resources are identified as unavailable for current expenditures, providing clarity and transparency in financial reporting. By distinguishing these funds, organizations can maintain a clear understanding of what resources are truly available for use versus those that are committed or restricted in some way.
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