Question

Which of the following is correct with respect to rainy day funds?

Multiple Choice

• Rainy day funds are classified as committed or restricted if imposed externally or by law.

• Rainy day funds are classified as unassigned if the funds are available for emergencies or revenue shortfalls which may be accessed on an ongoing basis.

• Both of the choices are correct.

• Neither of the choice is correct.

Answer 1

Meaning:-

A rainy day or rainy day fund is a reserved amount of money to be used in times when regular income is disrupted or decreased in order for typical operations to continue. In the United States, the term is usually used to apply to the funds maintained by most U.S. states to help deal with budget shortfalls in years where revenues do not match expenditures. This is critical to the operations of most states, which do not permit their governments to take on debt, meaning that services would have to be cut in the absence of reserve funds.

Answer:-

Both of the choices are correct.

Reason:-

A rainy day fund is intended to pay for a one-time, smaller expenditure. For example, paying for summer camp or braces for your child, or replacing a broken window in your home, or other short-term, unexpected cost.

A rainy day fund helps you avoid going into debt by covering all those small inconveniences that always seem to pop up. While a $250 repair to your car may not seem like much, it can throw your entire budget out of whack or even put you into debt if you aren’t prepared.