The biggest myth about CGFM Exam 2 is that it's a memory test of GASB rules. The reality is that memorization is where most candidates fail. They learn the journal entry for a capital purchase but can't explain why it's an "expenditure" in one report and an "asset" in another, a confusion the exam is built to exploit.
The 2026 CGFM Exam 2 cheat sheet condenses the essential GASB and FASAB standards, fund accounting rules, and budgetary reporting concepts you must master. It focuses on the critical judgment calls, like applying the correct basis of accounting and reconciling fund statements to the government-wide view, which are the highest-risk areas for candidates.
Key facts
- Exam Title
- Governmental Accounting, Financial Reporting and Budgeting
- Exam Number
- CGFM Exam 2
- Official Body
- AGA (Association of Government Accountants)
- Exam Format
- Approximately 115 multiple-choice questions
- Passing Score
- Scaled score of 500 out of 700
- Recommended Study Hours
- 30-45 hours of focused study
- Citable Stat
- The AGA requires candidates to pass all three CGFM exams within a three-year window from their application approval date, making an efficient study plan essential (AGA).
What Does CGFM Exam 2 Actually Test?
CGFM Exam 2 tests your judgment on applying governmental accounting principles (GASB), federal standards (FASAB), and fund accounting mechanics. It's less about reciting rules and more about choosing the right rule for a given scenario.
The highest-weight areas involve:
- Fund Accounting: Correctly classifying transactions within governmental, proprietary, or fiduciary funds.
- Basis of Accounting: Differentiating between modified accrual and full accrual and applying them correctly.
- Government-Wide Financial Statements: Understanding the purpose of these statements and how to reconcile them with the fund-level reports.
- Budgetary Reporting: Recording and closing budgetary entries and preparing budgetary comparison schedules.
The most common failure point is treating all government accounting the same. You must learn to think like an examiner, constantly asking: "Which reporting entity am I in right now, and what 'language' does it speak?" Try VoraPrep's free CGFM practice questions to see how these concepts are framed in exam-style scenarios.
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What Are the Core Formulas and Rules for Exam 2?
Success on this exam requires precision. These are not just concepts; they are the exact formulas and thresholds that appear in multiple-choice questions.
Core Accounting Equations
You must know the precise components of the balance sheet for each statement type.
- Net Position (Government-Wide & Proprietary Funds):
(Assets + Deferred Outflows of Resources) − (Liabilities + Deferred Inflows of Resources) = Net Position
- Fund Balance (Governmental Funds):
Assets − Liabilities = Fund Balance (Note: Deferred outflows and inflows are reported on the balance sheet but are not components of the fund balance calculation itself).
Key Thresholds to Memorize
- Major Fund Criteria (GASB 34): A governmental or enterprise fund is "major" if its total assets, liabilities, revenues, or expenditures/expenses meet both of these conditions:
- At least 10% of the corresponding total for all funds of that category (e.g., total assets of all governmental funds).
- At least 5% of the corresponding total for all governmental and enterprise funds combined.
The General Fund is always a major fund, regardless of size.
- Modified Accrual Revenue Recognition: In governmental funds, revenues are recognized only when they are both measurable and available. "Available" means collectible within the current period or soon enough after (typically 60 days) to pay current liabilities.
- Modified Accrual Expenditure Recognition: This is a critical nuance. Expenditures are generally recognized when the liability is incurred. However, there's a major exception: principal and interest on general long-term debt are only recognized as expenditures when they are due.
Calculate Your CGFM Score & Study Hours by Domain
Adjust your practice scores across official CGFM blueprint domains to predict your pass probability and generate a domain-weighted study schedule.
Which Exam Traps Cause Most Candidates to Fail?
The CGFM exam writers are experts at creating tempting wrong answers. Recognizing the pattern is the key to avoiding the trap.
The Modified vs. Full Accrual Minefield
This is the single biggest point-killer on Exam 2. You must be able to switch between the two viewpoints effortlessly.
| Feature | Governmental Funds (Modified Accrual) | Government-Wide & Proprietary Funds (Full Accrual) |
|---|---|---|
| Focus | Current Financial Resources | Economic Resources |
| Revenue | Recognized when "measurable and available" | Recognized when "earned" |
| Expenses | Called "Expenditures"; recognized when liability is incurred (with exceptions) | Called "Expenses"; recognized when incurred |
| Capital Assets | Recorded as "Capital Outlay Expenditure" | Capitalized as an asset and depreciated |
| Long-Term Debt | Proceeds are an "Other Financing Source" | Recorded as a long-term liability |
Reconciliation: The Make-or-Break Skill
Reconciliation questions are not simple math problems; they are logic puzzles. You are given a number from the fund statements (Fund Balance) and asked to find the number on the government-wide statements (Net Position).
- The $500,000 truck purchase is a "Capital Outlay Expenditure." This reduces Fund Balance.
- The $2,000,000 bond issuance is an "Other Financing Source." This increases Fund Balance.
- The $500,000 truck is a capital asset.
- Depreciation Expense for year one is $50,000 ($500,000 ÷ 10 years). This reduces Net Position.
- The $2,000,000 bond issuance creates a long-term liability.
- Add Capital Outlay Expenditures:
+ $500,000. (This reverses the expenditure because it's not an expense at the government-wide level). - Subtract Depreciation Expense:
− $50,000. (This records the consumption of the asset's value, which is a government-wide expense). - Subtract Other Financing Sources from Debt:
− $2,000,000. (This reverses the cash inflow because it created a liability, not revenue).
The net effect on the reconciliation is a decrease of $1,550,000. Master these three adjustments, and you will master the reconciliation questions. For more practice, VoraPrep's adaptive learning engine has hundreds of problems that target this exact skill, complete with detailed explanations for every answer choice.
Other Common Calculation and Classification Errors
- Interfund Activity: Confusing a non-reciprocal transfer (Other Financing Source/Use) with a reciprocal quasi-external transaction (Revenue/Expenditure).
- Internal Service Funds: Forgetting to eliminate the net income/loss of internal service funds when consolidating them into the governmental activities column on the government-wide statements.
- Budgetary Entries: Failing to reverse budgetary accounts (Estimated Revenues, Appropriations, Encumbrances) at year-end, leading to incorrect calculations of actual results.
What Are the Best Mnemonics for Fund Accounting?
While judgment is key, mnemonics provide a reliable hook for the classifications you must recall instantly under pressure.
Fund Type Mnemonics
- GRaSPP (Governmental Funds - Modified Accrual):
- General Fund
- Special Revenue Funds
- and
- Debt Service Funds
- Capital Projects Funds
- Permanent Funds
- SE-PAPI (Proprietary & Fiduciary Funds - Full Accrual):
- Internal Service Funds (Proprietary)
- Enterprise Funds (Proprietary)
- Pension Trust Funds (Fiduciary)
- Agency Funds (Fiduciary)
- Private-Purpose Trust Funds (Fiduciary)
- Investment Trust Funds (Fiduciary)
GAAP Hierarchy (GASB Statement 76)
You must know the order of authority. If two sources conflict, the higher level wins.
- Level A: GASB Statements and Interpretations. (The ultimate authority).
- Level B: GASB Technical Bulletins, Implementation Guides, and AICPA literature that has been specifically cleared by the GASB.
This is not just a list to memorize. An exam question might present a scenario where an AICPA Practice Bulletin (lower authority) seems to apply, but a GASB Statement (Level A) dictates a different treatment. You must choose the GASB Statement.
How Should I Use This Cheat Sheet in My Study Routine?
This guide is your high-yield review tool, not your primary textbook. Integrate it into your study plan to maximize retention.
Your Weekly Drill
- Monday Warm-up: Spend 10 minutes reviewing the Modified vs. Full Accrual table. Prime your brain for the week.
- Mid-Week Check-in: After completing a set of practice questions, use this sheet to diagnose your misses. Did you fall for a reconciliation trap? Did you misclassify a fund?
- Friday Flashcard Creation: Turn every formula, rule, and mnemonic into a digital flashcard. VoraPrep's platform includes FSRS Spaced-Repetition Flashcards that automatically schedule reviews for you.
Pair this routine with the adaptive questions in your VoraPrep study plan to turn theoretical knowledge into points on exam day.