How are research and development cost accounted for in the United States?
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In the United States, the accounting treatment for research and development (R&D) costs is governed by the Generally Accepted Accounting Principles (GAAP) as defined by the Financial Accounting Standards Board (FASB). The FASB's guidance on this matter is outlined in Accounting Standards Codification (ASC) Topic 730, which provides specific rules for recognizing, measuring, and reporting R&D costs.
According to ASC 730, R&D costs are generally expensed as incurred. This means that companies should recognize these costs as expenses in their income statements during the period in which the R&D activities take place. This treatment reflects the uncertain and speculative nature of R&D projects and the difficulty in attributing future benefits directly to these expenditures.
Here are a few key points to consider when accounting for R&D costs in the United States:
1. Definition of R&D costs: ASC 730 defines R&D costs as expenses incurred in conducting activities to discover new knowledge, with the intent of developing or improving a product, process, or service.
2. Examples of R&D costs: R&D costs may include personnel wages and benefits, materials and supplies, contractor fees, overhead costs directly associated with the R&D efforts, and some depreciation expenses related to R&D assets.
3. Capitalization of R&D costs: While most R&D costs are expensed as incurred, there are certain instances where costs may be capitalized. This can occur when the company develops intangible assets, such as patents or copyrights, that have future economic benefits and meet specific criteria outlined in ASC 730.
4. Presentation in financial statements: R&D costs should be disclosed in financial statements consistently over time, including the amounts expensed, any capitalized costs, and relevant details about the nature of the R&D activities.
It's important to note that accounting rules can be complex, and specific circumstances may require professional judgment or consultation with a qualified accountant or auditor to ensure compliance with GAAP.