Do Accounting Rules Discourage Research & Development?
By Michael Sack Elmaleh Businesses spend billions of dollars trying to develop new and better products, These outlays are referred to as research and development (R & D) costs. Accounting rule makers have struggled with how best to classify such expenditures. Should they be treated as expenses or assets? The classification of an outlay as an expense or an asset depends upon how long the firm will benefit from the outlay. If the benefit will be for more than one accounting period, it is classified as an asset. If the outlay provides economic benefit for less than a year it is generally classified as an expense. Tangible assets such as machinery and equipment produce income over several years. These tangible assets usually have easily ascertainable costs, which are spread over the assets” estimated useful lives in the form of depreciation expense. On the other hand, one month’’s rent payment is an expense because the outlay entitles the firm to only one month of economic benefit. Now con
