Nonprofit Management All-in-One For Dummies

Chapter 12

Organizing the Statement of Functional Expense

IN THIS CHAPTER

Allocating expenses by function and nature

Analyzing spending and efficiency

Your statement of functional expense reports expenses by their function and nature. First, expenses are classified by their function, which includes program costs, management and general expenses, and fundraising expense. Next, expenses are separated into their “natural” classification, such as salaries, rent, utilities, supplies, and depreciation.

All nonprofits have the option to report expenses by nature and function in one of three ways: in the notes to the financial statements, in the statement of activities (see Chapter 9 of this minibook) or in the statement of functional expense, the topic of this chapter. Nonprofits that have more than one function usually opt for the statement of functional expense.

Prior to 2017, only voluntary health and welfare group organizations were required to include a statement of functional expense. However, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14, which requires all nonprofits to report the functional and natural relationship between expense categories for fiscal years beginning after December 15, 2017. See Chapter 6 of this minibook for ...