When expenses are reported by function, they are being aggregated and reported by the type of activity being conducted. Examples of income statement line items that are presented by function are:
- Administration expenses
- Financing expenses
- Manufacturing expenses
- Marketing expenses
- Selling expenses
Reporting expenses by function tends to result in a relatively small number of expense line items, since there are not many functions in an organization. This approach can be useful from the perspective of the department manager, who can see all of the expenses for which he or she is responsible in one place.
An alternative format is to report expenses by their nature. This approach is more fine-grained, and so results in more line items on the income statement. Examples of reporting by nature are repairs expense, salary expense, and utility expense. This approach does not yield expense totals by department. Instead, separate expense reports must be prepared for each department.