Statements of Functional Expenses

Abstract

This chapter presents a statement of functional expenses. FASB Accounting Standards Update (ASU) No. 2016-14, Not-for-Profit Entities: Presentation of Financial Statements of Not-for-Profit Entities, requires for each period presented an analysis of total expenses by both their function and nature in a single location either on the face of the statement of activities, as a schedule in the notes to financial statements, or in a separate financial statement. The relationship between functional classification and natural classification for all expenses shall be presented in an analysis that disaggregates functional expense classifications, such as major classes of program services and supporting activities, by their natural expense classification, such as salaries, rent, electricity, interest expense, supplies, depreciation, awards and grants to others, and professional fees. In addition, ASU No. 2016-14 requires NFPs to provide a description of the methods used to allocate costs among program and support functions. Entities have great flexibility about how many program and supporting services categories and how many natural expense categories are included in the expense analysis. However, there should be symmetry between the items shown in the statement of activities and those included in the expense analysis