CPFO Accounting 2026 – 400 Free Practice Questions to Pass the Exam

Interest expense can be classified as a functional expense in governmental activities when it is essential for a program's creation. This classification occurs because interest expenses directly tied to financing a program's capital investments are necessary to meet the objectives of that program. In this context, functional expenses are expenses that can be categorized based on the purpose of the spending, such as public safety or education. If the interest expense is crucial for the initiation or ongoing operations of a specific program, it becomes integral to that program's functionality, thereby justifying its classification as a functional expense.

This treatment recognizes the financial implications associated with funding specific activities in government and acknowledges the role of interest expenses in supporting operational capabilities and fulfilling programmatic goals.