Certified Government Financial Manager (CGFM) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

Revenues for non-exchange transactions are recognized when the government has established a legal claim to the resources. This principle is particularly relevant in governmental accounting, where non-exchange transactions typically involve instances such as taxes, grants, and donations, where the government receives resources without providing equal value in return.

The recognition at the point of establishing a legal claim ensures that revenues are matched with the applicable time period in which they are meant to be recognized. This aligns with the accrual basis of accounting, where revenue is recognized when it is earned, rather than when cash is actually received. Establishing a legal claim indicates that the government has fulfilled its obligations to receive those resources, making it appropriate to recognize the revenue.

In contrast, recognizing revenue when cash is received would not apply to non-exchange transactions, as it fails to capture the essence of why those revenues would be reported in the first place. Initiating a transaction does not imply revenue recognition until the legal claim is confirmed, and waiting for all expenditures to be complete is irrelevant, as revenue recognition is more about the right to receive rather than the utilization of the revenue within a budget or project timeline.