Final answer:
Under GASB, negative fund balances are reported as unassigned fund balance, which indicates insufficient funds to meet liabilities. This assists in maintaining transparency and suggests the need for financial resource replenishment. Governments should ideally maintain a positive unassigned fund balance.
Step-by-step explanation:
Under the Governmental Accounting Standards Board (GASB) guidelines, negative fund balances may only be reported as unassigned fund balance. The GASB sets the standards for financial accounting and reporting by state and local governments. The term unassigned fund balance refers to the portion of fund equity that has not been categorized in any of the five specific fund balance categories that GASB has outlined, which include non-spendable, restricted, committed, assigned, and unassigned fund balances.
When the available fund balance is negative, it suggests that there are not enough assets in the fund to cover liabilities and commitments. Typically, a negative unassigned fund balance will occur in the General Fund and indicates that financial resources are not sufficient and may need replenishment either from future revenues or through adjustments like reducing expenditures or increasing taxes.
An important aspect of reporting negative balances is transparency in governmental funds. Reporting negative fund balances as unassigned helps stakeholders understand the financial position and challenges which may affect the ability of the government to provide services. However, governments should always aim to maintain a positive unassigned fund balance for fiscal stability.