Functional Expenses

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Definition: Functional Expenses

Functional expenses is the capital spent on various functions or activities by an organisation to achieve the targets for which the organisation works. Functional expenses on being divided into further categories comprise of buying functional expenses, programme functional expenses, administrative functional expenses and lastly fund raising functional expenses.

The statement of functional expenses serves the purpose of documentation of the expenditure and capital flow in a non-profit organisation. It can be considered as the corresponding element of a financial statement in case of a for-profit organisation.

The difference between a for-profit and a non-profit organisation lies primarily in their aims and objectives. A for-profit organisation works in order to earn profits, the benefits of which are enjoyed by the stakeholders. On the other hand, the objective of a non-profit organisation lies solely in improving the way how it serves the society and achieves its objectives and does not care much about the profits. Such organisations generally comprise of groups that work for the betterment and welfare of society. The flow of income, financial results and efficiency of such an organisation is accounted with the help of Statement of Functional Expenses (SFE).

The above diagram shows the accounting expenditure of an NGO, wherein buying functional expenses is one of the expenses alongwith programme, administrative and fund-raising expenses.

Hence, this concludes the definition of Functional Expenses along with its overview.


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