Generating a Statement of Functional Expenses

According to the AICPA’s Non-Profit Guide, not-for-profits are required to report either in the Statement of Activities or the footnotes information about expenses reported by their functional classification such as major classes of program services and supporting activities.   Program services and supporting activities are defined as follows:

a)      Program service expenses include activities that result in goods or services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission for which the organization exists.

b)      Management and general activities include oversight, business management, general record-keeping, budgeting, financing, and related administrative activities, and all management and administration except for direct conduct of program services or fundraising activities.

c)       Fundraising activities include publicizing and conducting fund-raising campaigns;  maintaining donor mailing lists; conducting special fund-raising campaigns; maintaining donor mailing lists; conducting special fund-raising events; preparing and distributing fund-raising manuals, instructions, and other materials;  and conducting other activities involved with soliciting contributions from individuals, foundations, government agencies, and others.

Voluntary health and welfare organizations have to take this a step further and prepare a Statement of Functional Expense which shows the functional classifications side-by-side as shown below.

 

statement-of-functional-expensesGenerating a Statement of Functional Expense similar to the attached example can be challenging if you don’t have proper accounting software to support it.   With Microsoft Dynamics GP and its financial report writer, Management Reporter, however, it’s a breeze.   It’s particularly easy if you have a segment in your chart of accounts that designates your programs.    If so, you have two options for creating a report similar to the one above.  The first option is to create a Reporting Tree that includes each of your programs as a node on the tree.  You can then create a Column Definition that restricts each column to the corresponding program node on the tree.   The second option is to not use a Reporting Tree and, instead, restrict each column in the Column Definition directly to a specific program segment in the chart of accounts.   Both options work.  The Reporting Tree option, however, will give you more flexibility for creating different variations of the same report.

For additional information on how to create a Statement of Functional Expenses or similar financial statement using Microsoft Dynamics GP, please feel free to visit our website www.manersolutions.com or e-mail James at [email protected].

Maner Costerisan – a Michigan-based CPA firm and technology consulting firm specializing in helping Not-for-Profits improve operations and support their mission through financial accounting, CRM and productivity software solutions.    We are Certified Partners for Microsoft Dynamics GP and Intacct, a cloud based financial solution.    For more information on how we can help you excel in these challenging economic times, please contact us (517) 323-7500 or visit our website www.manersolutions.com.

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ERP professionals providing insight and advice for not for profit organizations.