Final answer:
Rainy day funds are classified as restricted under GASB standards if they are established by a resolution or ordinance that details the specific conditions for their use. This ensures the funds are used only for their intended purpose and in appropriate circumstances.
Step-by-step explanation:
The Governmental Accounting Standards Board (GASB) sets financial accounting and reporting standards for state and local governments in the United States. According to GASB standards, rainy day funds can be classified as restricted if they meet certain criteria. Specifically, a rainy-day fund may only be classified as restricted if there is a formal action such as a resolution or ordinance that specifies the particular circumstances under which the funds may be used.
For example, a city council may pass an ordinance that establishes a rainy day fund for emergency situations, such as natural disasters or unexpected sharp economic downturns. The ordinance would detail the specific conditions that need to be met before funds can be allocated from the rainy day fund. This level of specificity is what allows these funds to meet the GASB criteria for being classified as restricted funds.