CGFM Exam Study Questions: Federal Budgeting and
Accounting with Complete Solutions
1. Which of the following is the first step in the federal budget process?
A) Congress enacts appropriations bills
B) Agencies prepare their draft budgets
C) The president signs the budget
D) OMB reviews agency expenditures
Answer: B
Agencies prepare the first draft of their budgets using guidance from OMB. This draft includes
funding requests, program proposals, and projected costs. After consultation with OMB,
revisions are made before submission to the president.
2. The Anti-Deficiency Act is intended to:
A) Prevent the government from running a deficit
B) Prevent agencies from overspending their appropriations
C) Ensure mandatory spending levels are maintained
D) Approve presidential budget submissions
Answer: B
The Act prohibits agencies from spending more than the appropriated amount and from
obligating funds before they are available. It helps ensure funds last for the intended fiscal year.
It also prevents the need for emergency supplemental appropriations.
3. Which of the following describes discretionary spending?
A) Spending required by permanent law
B) Spending subject to annual appropriations by Congress
C) Mandatory payments for Social Security
D) Interest on public debt
Answer: B
Discretionary spending makes up roughly one-third of total federal spending. It is determined
annually by Congress through appropriations bills. Examples include defense, education, and
transportation funding.
4. The statement of budgetary resources primarily reports:
A) Program costs and revenues
B) Budgetary compliance and status of resources
C) Long-term sustainability of social insurance programs
D) Treasury cash balances
Answer: B
It shows total budgetary resources available to an entity and how those resources were used. The
statement ensures compliance with appropriations law. It is prepared using budgetary accounting
principles and is subject to audit.
,5. What is the role of OMB in budget execution?
A) Only prepares the president’s budget
B) Evaluates program performance and funding priorities
C) Approves all agency expenditures
D) Collects revenue for the Treasury
Answer: B
OMB assesses program effectiveness and competing funding demands. It ensures agency reports
and legislative proposals are consistent with administration policies. It also coordinates financial
management, procurement, and information policies.
6. Which of the following is not mandatory spending?
A) Social Security benefits
B) Interest on public debt
C) Federal employee salaries funded through annual appropriations
D) Medicare benefits
Answer: C
Salaries funded through annual appropriations are discretionary, not mandatory. Mandatory
spending is set by law and does not require annual approval. Social Security and Medicare are
examples of mandatory spending.
7. The Treasury serves as the financial agent of the federal government by:
A) Auditing agency performance
B) Disbursing funds, collecting revenue, and managing debt
C) Preparing agency budgets
D) Issuing appropriations to Congress
Answer: B
The Treasury disburses about 950 million payments annually, collects trillions in receipts,
manages debt collection, and provides government-wide accounting. It ensures the federal
government has adequate cash flow for operations.
8. Which of the following statements best describes GAAP for federal entities?
A) GAAP is only defined by FASAB and has no other sources
B) GAAP is a hierarchy of standards and guidance for federal accounting
C) GAAP only applies to budgetary accounts
D) GAAP is defined by OMB
Answer: B
FASAB establishes a hierarchy of standards, but auditors and preparers may use other
authoritative guidance if necessary. GAAP guides financial reporting, including budgetary and
proprietary accounts. It ensures consistency and reliability of financial information.
9. What is a “responsibility segment” in federal accounting?
A) An internal division responsible for budget submission
B) An organizational unit whose operations costs are reported on the statement of net costs
C) A congressional committee overseeing appropriations
D) A Treasury account for debt management
Answer: B
, Responsibility segments allow agencies to report costs at a detailed organizational level. This
facilitates performance assessment and accountability. Each segment represents an operational
unit or program.
10. Which of the following is considered an exchange revenue?
A) Taxes
B) Customs duties
C) Fees for services provided by the government
D) Social Security contributions
Answer: C
Exchange revenue arises from a transaction where goods or services are provided in return for
payment. Taxes and non-exchange contributions are financing sources, not exchange revenue.
11. Which flow assumption is not acceptable for federal inventory valuation?
A) FIFO (First In, First Out)
B) LIFO (Last In, First Out)
C) Weighted average
D) Specific identification
Answer: B
LIFO is not permitted under federal accounting standards. FIFO, weighted average, and specific
identification methods are acceptable. These methods ensure accurate cost measurement for
accountability.
12. What is included in the statement of net cost?
A) Gross program costs and exchange revenue
B) Non-exchange revenue
C) Appropriations used
D) Treasury cash balances
Answer: A
The statement reports program costs minus exchange revenues to show the net cost of
operations. Non-exchange revenues and appropriations are presented elsewhere in financial
statements.
13. Which of the following is an example of a stewardship investment?
A) Federal building construction
B) Social Security benefits
C) Research and development funded by the federal government
D) Treasury bond payments
Answer: C
Stewardship investments, such as R&D, human capital, and non-federal physical assets, provide
long-term benefits without creating federal assets. They enhance the nation’s productive
capacity.
14. What is the purpose of the performance and accountability report (PAR)?
A) To satisfy only financial reporting requirements
B) To combine performance reporting, GAAP-based statements, and compliance information
Accounting with Complete Solutions
1. Which of the following is the first step in the federal budget process?
A) Congress enacts appropriations bills
B) Agencies prepare their draft budgets
C) The president signs the budget
D) OMB reviews agency expenditures
Answer: B
Agencies prepare the first draft of their budgets using guidance from OMB. This draft includes
funding requests, program proposals, and projected costs. After consultation with OMB,
revisions are made before submission to the president.
2. The Anti-Deficiency Act is intended to:
A) Prevent the government from running a deficit
B) Prevent agencies from overspending their appropriations
C) Ensure mandatory spending levels are maintained
D) Approve presidential budget submissions
Answer: B
The Act prohibits agencies from spending more than the appropriated amount and from
obligating funds before they are available. It helps ensure funds last for the intended fiscal year.
It also prevents the need for emergency supplemental appropriations.
3. Which of the following describes discretionary spending?
A) Spending required by permanent law
B) Spending subject to annual appropriations by Congress
C) Mandatory payments for Social Security
D) Interest on public debt
Answer: B
Discretionary spending makes up roughly one-third of total federal spending. It is determined
annually by Congress through appropriations bills. Examples include defense, education, and
transportation funding.
4. The statement of budgetary resources primarily reports:
A) Program costs and revenues
B) Budgetary compliance and status of resources
C) Long-term sustainability of social insurance programs
D) Treasury cash balances
Answer: B
It shows total budgetary resources available to an entity and how those resources were used. The
statement ensures compliance with appropriations law. It is prepared using budgetary accounting
principles and is subject to audit.
,5. What is the role of OMB in budget execution?
A) Only prepares the president’s budget
B) Evaluates program performance and funding priorities
C) Approves all agency expenditures
D) Collects revenue for the Treasury
Answer: B
OMB assesses program effectiveness and competing funding demands. It ensures agency reports
and legislative proposals are consistent with administration policies. It also coordinates financial
management, procurement, and information policies.
6. Which of the following is not mandatory spending?
A) Social Security benefits
B) Interest on public debt
C) Federal employee salaries funded through annual appropriations
D) Medicare benefits
Answer: C
Salaries funded through annual appropriations are discretionary, not mandatory. Mandatory
spending is set by law and does not require annual approval. Social Security and Medicare are
examples of mandatory spending.
7. The Treasury serves as the financial agent of the federal government by:
A) Auditing agency performance
B) Disbursing funds, collecting revenue, and managing debt
C) Preparing agency budgets
D) Issuing appropriations to Congress
Answer: B
The Treasury disburses about 950 million payments annually, collects trillions in receipts,
manages debt collection, and provides government-wide accounting. It ensures the federal
government has adequate cash flow for operations.
8. Which of the following statements best describes GAAP for federal entities?
A) GAAP is only defined by FASAB and has no other sources
B) GAAP is a hierarchy of standards and guidance for federal accounting
C) GAAP only applies to budgetary accounts
D) GAAP is defined by OMB
Answer: B
FASAB establishes a hierarchy of standards, but auditors and preparers may use other
authoritative guidance if necessary. GAAP guides financial reporting, including budgetary and
proprietary accounts. It ensures consistency and reliability of financial information.
9. What is a “responsibility segment” in federal accounting?
A) An internal division responsible for budget submission
B) An organizational unit whose operations costs are reported on the statement of net costs
C) A congressional committee overseeing appropriations
D) A Treasury account for debt management
Answer: B
, Responsibility segments allow agencies to report costs at a detailed organizational level. This
facilitates performance assessment and accountability. Each segment represents an operational
unit or program.
10. Which of the following is considered an exchange revenue?
A) Taxes
B) Customs duties
C) Fees for services provided by the government
D) Social Security contributions
Answer: C
Exchange revenue arises from a transaction where goods or services are provided in return for
payment. Taxes and non-exchange contributions are financing sources, not exchange revenue.
11. Which flow assumption is not acceptable for federal inventory valuation?
A) FIFO (First In, First Out)
B) LIFO (Last In, First Out)
C) Weighted average
D) Specific identification
Answer: B
LIFO is not permitted under federal accounting standards. FIFO, weighted average, and specific
identification methods are acceptable. These methods ensure accurate cost measurement for
accountability.
12. What is included in the statement of net cost?
A) Gross program costs and exchange revenue
B) Non-exchange revenue
C) Appropriations used
D) Treasury cash balances
Answer: A
The statement reports program costs minus exchange revenues to show the net cost of
operations. Non-exchange revenues and appropriations are presented elsewhere in financial
statements.
13. Which of the following is an example of a stewardship investment?
A) Federal building construction
B) Social Security benefits
C) Research and development funded by the federal government
D) Treasury bond payments
Answer: C
Stewardship investments, such as R&D, human capital, and non-federal physical assets, provide
long-term benefits without creating federal assets. They enhance the nation’s productive
capacity.
14. What is the purpose of the performance and accountability report (PAR)?
A) To satisfy only financial reporting requirements
B) To combine performance reporting, GAAP-based statements, and compliance information
