Under the fund method of reporting, members' equity is referred to as what?

Under the fund method of reporting, members' equity is referred to as what?

• A. Fund balance
• B. Retained earnings
• C. Capital stock
• D. Net assets

Answer: (A)

Fund accounting focuses on resources held in separate funds, so the remaining resources within a fund are described as the fund balance. In this method, each fund’s assets minus its liabilities equal its fund balance, which functions as the fund’s equity and shows how much is available for that fund’s purposes. Terms like retained earnings and capital stock belong to for-profit corporate reporting and don’t reflect the fund-based view. Net assets is the nonprofit-wide concept used on overall statements, not the per-fund measure used in the fund method. Thus, fund balance is the appropriate term for members’ equity under the fund reporting approach.

Fund accounting focuses on resources held in separate funds, so the remaining resources within a fund are described as the fund balance. In this method, each fund’s assets minus its liabilities equal its fund balance, which functions as the fund’s equity and shows how much is available for that fund’s purposes. Terms like retained earnings and capital stock belong to for-profit corporate reporting and don’t reflect the fund-based view. Net assets is the nonprofit-wide concept used on overall statements, not the per-fund measure used in the fund method. Thus, fund balance is the appropriate term for members’ equity under the fund reporting approach.