Final answer:
The reporting of the fund balance of governmental funds can be categorized into five categories, which help define the availability and constraints on government funds. The correct answer is option E.
Step-by-step explanation:
The reporting of the fund balance of governmental funds will result in a maximum of five categories. These categorizations are used to specify the extent to which government funds are available for spending, and they are defined by the governmental accounting standards.
The five categories are as follows: Non-spendable, Restricted, Committed, Assigned, and Unassigned. For example, the Non-spendable fund balance category includes items that cannot be spent because they are either not in spendable form, such as inventories or long-term loans and receivables, or are legally or contractually required to be maintained intact.
These distinctions in fund balances are vital for understanding the financial condition and the constraints on government resources.