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

Proprietary and fiduciary funds operate under the accrual basis of accounting. This approach recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash exchanges hands. This method provides a more accurate reflection of an entity's financial position and its operations over time.

Proprietary funds, which include enterprise and internal service funds, are intended to operate similar to private sector businesses. Therefore, they follow the accrual basis to align with the financial principles utilized in the private sector, providing stakeholders with a clearer picture of financial health and performance.

Fiduciary funds, which include pension trust funds, investment trust funds, and agency funds, also utilize the accrual basis. This is because these funds are responsible for managing resources that belong to other entities or individuals, requiring a comprehensive accounting of all transactions and financial events to ensure transparency and accountability.

Understanding the accrual basis helps clarify financial results and maintains consistent reporting standards across these types of funds. This is essential in governmental accounting, where it is important to present a complete financial narrative concerning the management of public resources and obligations.