15. Why do the balance sheets of agency funds contain only assets and liabilities, but no fund balances? Why is it often unclear whether the resources relating to a particular activity should be accounted for in an agency fund or a governmental fund?
By definition, an agency fund is a fund that is acting as an agent for another fund, much as an insurance agent acts on behalf of an insurance company. Because the agency fund has no ownership interest in the resources being handled, there could be no fund balance.
Fund balance would represent the excess of assets over ...
The 216 word cited solution clearly defines an agency fund as well as types of government funds with an example.