Certified Government Financial Manager (CGFM) Practice Exam

In governmental accounting, proprietary funds operate similarly to private business enterprises, and the treatment of donations follows standard revenue recognition principles. Donations made to proprietary funds are recorded as revenue because they increase the net position of the fund, which is essential for demonstrating the fund’s financial health. When a donation is received, it typically includes either cash or capital assets. The accounting entry for such donations will reflect the increase in revenue along with a corresponding asset, whether it is cash on hand or a capital asset that the fund now possesses. This approach ensures that the revenues are recognized in the period in which they are received, which aligns with accrual accounting standards. Furthermore, recognizing donations as revenue provides a more accurate picture of the financial activity within proprietary funds, which is important for financial reporting and transparency. By recording these transactions appropriately, the financial statements will give users a clear understanding of the resources available to the fund due to donations.