To report expenses by function means to report them according to the activity for which the expenses were incurred.

For a business, the reporting of expenses by function means the income statement will report expenses according to the following functional classifications: manufacturing, selling, general administrative, and financing.

For a not-for-profit organization, the reporting of expenses by function means the statement of activities will report expenses according to the following functional classifications: 1) each of its major programs, and 2) the supporting services which are a) management and general, b) fund-raising, and c) membership development.

(Classifying expenses according to salaries, electricity, repairs, etc. is referred to as natural classifications, or classifyng expenses by their nature.)

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