Question

Expenses on the income statement may be grouped by:

a.nature, but not by function.
b.function, but not by nature.
c.either function or nature.

Answer 1

Expenses on the income statement can be grouped either by function, which categorizes expenses by company operations, or by nature, categorizing expenses by their inherent type.

Step-by-step explanation:

Expenses on the income statement may be grouped by either function or nature. Grouping by function involves categorizing expenses according to the company's operations, like cost of sales, selling, general, and administrative expenses. On the other hand, grouping by nature involves classifying expenses based on their nature, which includes categories like salaries, rent, utilities, and depreciation without linking them to a function of the business. This methodological choice is based on the flexibility of the accounting framework, where a wise economist or accountant may shape the model to fit the specific question under investigation, similar to how one might adjust models in economics to include or exclude certain components like exports and imports.