Certified Government Financial Manager (CGFM) Practice Exam

The cash basis of accounting primarily reflects the inflows and outflows of cash only because it recognizes financial transactions only when cash is actually received or paid out. This method focuses on actual cash movements rather than the timing or amount of revenues and expenses as they are recorded, which is characteristic of accrual accounting.

Under the cash basis, income is recorded when cash is received, and expenses are recorded when cash is paid. This provides a straightforward view of a government’s cash position, making it easier to track how much cash is available at any point in time. By emphasizing cash transactions, this method offers a clear-eyed picture of liquidity, which is essential for financial management, particularly in ensuring that obligations can be met as they arise.

It's important to note that other options include elements that are not applicable under the cash basis. Outstanding receivables and payables, for example, relate to accrual accounting, which records revenue and expenses when they are incurred, regardless of cash movement. The options concerning both current and future financial obligations and total economic resources of a government align more closely with comprehensive financial analyses typical of accrual basis accounting rather than the direct cash flow focus of the cash basis.