Which of the following statements is TRUE?

The statement regarding designations not exceeding the unreserved fund balance is accurate because designations are intended to indicate that a portion of the fund balance is set aside for a specific purpose but can be easily modified or removed by the governing body. This means that they should not exceed the unreserved portion of the fund balance, as that would imply a commitment beyond the available resources.

The concept of unreserved fund balance provides a cushion for the municipality or organization, allowing for flexibility in managing available funds while ensuring that there are sufficient resources to cover existing liabilities or commitments. Designations, being less formal than reservations, should always stay within the limits of this unreserved amount to maintain fiscal responsibility and transparency.

Reservations represent a more formal commitment of funds for specific purposes and fundamentally represent "restricted" amounts that cannot be spent for other uses. While reservations can't exceed the total fund balance, the key focus here is that designations specifically need to rely on the unreserved portion to avoid mismanagement of available funds.

Thus, the focus on the relationship between designations and the unreserved fund balance makes this statement true within the context of governmental accounting practices.