Question

13. What are the categories that expenses must be classified in for a NFP? Provide an example of a transaction that would be included in each category.

Answer 1

Solution:-

What are the categories that expenses must be classified in for a NFP? Provide an example of a transaction that would be included in each category:-

Functional expenses are reported by their functional classification and recorded in a Statement of Functional Expenses. This method of expense reporting is most commonly used by nonprofit organizations.

Nonprofit organizations report their expenses by both functional and natural class. Organizations record expenses according to these functional classifications:

PROGRAMS

Program expenses are any costs related to running the various programs and services offered by a nonprofit organization, as per its mission. For established nonprofits, program expenses often make up the majority of their overall costs.

MANAGEMENT AND GENERAL

Management and general costs are supporting expenses associated with funding the day-to-day operations of the organization. These expenses don’t directly relate to the mission of the nonprofit and usually include costs like governance, bookkeeping and management.

FUNDRAISING

Fundraising costs are supporting expenses associated with an organization’s call for financial support or monetary contributions. This would include all expenses related to fundraising events, direct mail campaigns requesting donations and the salaries of employees working on fundraising.

Organizations then also present their expenses by natural classification, which can include:

• Salaries
• Office rent
• Insurance
• Utilities
• Repairs
• Office supplies
• Depreciation

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