Final answer:
According to FASB requirements, it is the voluntary health and welfare entities that must prepare a statement showing the relationship between functional and natural classifications of expenses for financial reporting purposes.
Step-by-step explanation:
The Financial Accounting Standards Board (FASB) sets the guidelines for financial reporting and accounting practices. Specifically, the FASB requires that certain entities prepare a statement showing the relationship of functional expenses to natural classifications of expense. This statement is particularly crucial for entities to display how they allocate expenses according to their purpose and nature.
Answering the student's question, the entity required by FASB to prepare such a statement is B. Voluntary health and welfare entities. These organizations are typically nonprofits that provide health and welfare services on a voluntary basis, distinct from colleges and universities, private hospitals, or governmental agencies like Health and Social Services.
Understanding the allocation of functional expenses is important for these entities because it helps to provide transparency to donors, grantors, and other stakeholders regarding how the organization uses its funds to support various programs and administrative functions.