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:
  • In Process Research and Development Charge
  • Analytical Issues Related to Research and Development
  • The Defensive Interval
  • The Income Statement: Operating versus Non-Operating Components
  • Using Common Size Financial Statements to Forecast Earnings
  • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    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)

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