Income Statement Function Of Expense Method

The following example shows the format of an income statement by function of expense.

Income statement function of expense method. There is no reallocation of these expenses to different functions of the entity i e. This method is also known as cost of sales classification method. Classification using function of expense. Using the nature of expense method and the function of expense method identify the information to be presented on the face of the statement of comprehensive income as provided in pas 1 describe the nature of the statement of changes in equity identify the information to be presented on the face of the statement of changes in equity as provided in pas 1 describe the nature of discontinued.

An income statement by function is the one in which expenses are disclosed according to different functions they are spent on cost of goods sold selling administrative etc this method allows us to calculate gross profit and operating profit within the income statement and therefore is usually used in the multi step format of income. However the standard requires that if the expenses of the business are presented by their function in the income statement the notes to the financial statements should provide information about the nature of these expenses. An income statement by nature method is the one in which expenses are disclosed according to their nature such as depreciation transports costs rent expense wages and salaries etc. Most businesses around the world choose the option to present expenses in their income statements by their function.

The use of function method to disclose expenses still requires us to disclose the individual expenses by nature method under each function either on the face of the income statement or in the notes to the income statement. The main advantage of using this nature of expense method is that it is simple to apply because no allocations of expenses to functional classifications are necessary. Cost of goods sold selling costs administrative costs and other expenses.