Research and Development Expense
Research is the process of searching for new knowledge, while development is the process of translating this knowledge into a plan or design for a new process or product. In some industries, (for example, pharmaceuticals) these activities are essential for future revenues and profitability.
Some companies do not record a separate line item for research and development expenses. To the extent that they do incur such expenses they are probably lumped into selling, general, and administrative expenses but would be disclosed in a footnote. Companies that are more reliant on research will generally report it separately. Both International Accounting Standards (IAS) and United States GAAP require research to be expensed as incurred. US GAAP also requires development to be expensed while IAS 9 permits development costs to be capitalized as an asset if certain requirements are met.
For more information, see all articles on: Accounting, Financial Statement Analysis See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
