Which of the following classifications is required for reporting of expenses by all not-for-profit organizations?
a.Functional classification in the statement of activities and natural classification in a matrix format in a separate statement.
b.Functional classification in the statement of activities or notes to the financial statements.
c.Functional classification in the statement of activities and natural classification in the notes to the financial statements.
d.Natural classification in the statement of activities or notes to the financial statements.
Answer:B
Choice "B" is correct. A not-for-profit organization needs to report its expenses in the statement of activities by their functional classification (program classification, supporting activities, fund-raising, etc.). This method helps donors and others in assessing an organization's service efforts.
Choice "d" is incorrect. There is no requirement that the not-for-profit organization must report its expenses in a natural classification, except for voluntary health and welfare organizations.
Choice "a" is incorrect. A not-for-profit organization needs to report its expenses in the statement of activities by their functional classification (program classification, supporting activities, fund-raising, etc.). There is no requirement that the organization must also report the expenses in a natural classification in a separate statement, except for voluntary health and welfare organizations.
Choice "c" is incorrect. A not-for-profit organization needs to report its expenses in the statement of activities by their functional classification (program classification, supporting activities, fund-raising, etc.). There is no requirement that the organization must also disclose the expenses in a natural classification in the notes to the financial statements.