Natural classification

There are two ways to cut a charity’s expenditure, and they answer different questions.

Natural classification groups costs by type: staff, premises, professional fees. Activity classification groups them by purpose: charitable activities, raising funds, governance. The SORP requires the activity analysis in the Statement of Financial Activities, with a natural analysis in the notes.

Set your chart of accounts up so both are possible from the same data — retrofitting a second analysis is painful. See building a chart of accounts.