Question

Explain the Cost Accounting treatment of Research & Development. Expenses.

Answer 1

The accounting for research and development involves those activities that create or improve products or processes. The core accounting rule in this area is that expenditures be charged to expense as incurred.

Examples of activities typically considered to fall within the research and development functional area include the following:

• Research to discover new knowledge
• Applying new research findings
• Testing products and processes
• Modifying formulas, products, or processes
• Designing tools that involve new technology

The basic problem with research and development expenditures is that the future benefits associated with these expenditures are sufficiently uncertain that it is difficult to record the expenditures as an asset.