By classifying by function

Under this format, the expenses of the company are classified into 5 major categories i.e.

1. Cost of sales [(opening stock + purchases – closing stock) and deprecation]
2. Distribution costs (transport costs, selling expenses, commission, provision for bad debts etc)
3. Administration expenses (salaries and wages, telephone, rates, postage, rent etc, goodwill amortization)
4. Other expenses (all other not falling under the above) groups of expenses)
5. Finance cost (interest on loan and  bank overdraft, interest on finance lease, dividends on redeemable preference shares).