Which statement best describes presenting expenses by function in the income statement?

Which statement best describes presenting expenses by function in the income statement?

• A. Expenses grouped by function (cost of sales, administrative, distribution)
• B. Expenses grouped by type (materials, staff costs, depreciation)
• C. It's the same as the cash flow statement
• D. It excludes depreciation

Answer: (A)

Presenting expenses by function groups costs according to the activity they support, such as cost of sales, distribution, and administration. This format emphasizes how much each function contributes to the overall operating costs and to profit, and it aligns with calculating gross profit (revenue minus cost of sales) followed by operating profit. Depreciation is not excluded; it belongs to the function it supports—factory depreciation would be included with cost of sales (manufacturing costs) and office depreciation would be included with administration. Choosing this structure helps users see the cost behavior by activity rather than just by type of expense. Grouping by type would be a different presentation (materials, staff costs, depreciation), while the income statement is distinct from the cash flow statement.

Presenting expenses by function groups costs according to the activity they support, such as cost of sales, distribution, and administration. This format emphasizes how much each function contributes to the overall operating costs and to profit, and it aligns with calculating gross profit (revenue minus cost of sales) followed by operating profit. Depreciation is not excluded; it belongs to the function it supports—factory depreciation would be included with cost of sales (manufacturing costs) and office depreciation would be included with administration. Choosing this structure helps users see the cost behavior by activity rather than just by type of expense. Grouping by type would be a different presentation (materials, staff costs, depreciation), while the income statement is distinct from the cash flow statement.