Statements of Financial Accounting Standards (SFAS) 116 and 117
SFAS 116 underlies accounting for contributions received and contributions made. This statement requires that not-for-profit organizations distinguish between the contributions received that increase permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets. In addition the statement requires that recognition of the expiration of donor-imposed restrictions is in the period in which the restrictions are met or expire.

Exceptions are made for certain types of contributions, including contributions of services, works of art, even historical treasures. If the contributed services either create or enhance nonfinancial assets, or persons providing special skills that would otherwise need to be purchased if not donated, the contribution is recognized.

SFAS 117 underlies the requirements for financial statements of not-for-profit organizations. The objective of Statement 117 is to enhance an organization’s financial statement relevance, understandability, and comparability. Specific information is required that reports the organization as a whole and that meets the common needs of external users of the financial statements.

In accordance with Statement 117, all not-for-profit organizations must provide a statement of financial position, a statement of activities, and a statement of cash flows. In addition, organizations must report amounts for its total assets, liabilities, and net assets in the statement of financial position; report the organization’s change in net assets in the statement of activities; and report the change in cash and cash equivalents in the statement of cash flows.

SFAS 116 and 117 are important statements for maintaining financial accounting standards for not-for-profit organizations. Statement 116 ensures that proper reporting procedures are followed when an organization receives or makes contributions, while Statement 117 underlies requirements for year-end financial statements.

Why do operating activities appear first on the statement of cash flows?
Operating activities are presented first on the statement of cash flows because of the importance that net cash has on the usefulness of the financial statement. One of the main objectives of a statement of cash flows is to help investors, and other users of a firm’s financial statements, with determining the firm’s ability to generate future cash flows; the firm’s ability to meet current obligations, including repaying creditors and paying dividends to investors; the firm’s reasoning for the difference between net income and net cash flow from operating activities; and to detail the firm’s investments and financing transactions.

One reason that operating activities are considered to be most important to financial data users, is that operation activities show precisely how much money was generated through the firm’s operations during the period. A firm’s ability to continue with future operations weighs highly on its ability to generate revenue based on its main operations. Because of this, operating activities – cash inflows and cash outflows – are accounted for before secondary influences, i.e. investing and financing. Operating activities include payment to suppliers, employees, taxes, and miscellaneous other operating expenses, along with revenue earned from goods and services provided. This data is most important to investors and assuring investor confidence.