This thesis provides and analysis of the current accounting for research and development expenditures, including the tax treatment and their impact on the financial statements. The methods used to analyze this information include reviewing Generally Accepted Accounting Principles, States of Financial Accounting Standards, and the Internal Revenue Code.
To better understand the topic, background information including definitions of key concepts, identification of stakeholders, and the perspectives presented in relation to the discussion of expensing or capitalizing R&D will be provided. My research targets the importance of encouraging R&D, whether or not expensing or capitalizing R&D would be preferred, and the effectiveness of the tax credit for increased research activities.
The research found that investing in R&D is the key to economic growth and should be encourage. Whether or not R&D should be expensed or capitalized depends on the business, industry, and product life cycle. Lastly, the federal tax credit for increased research activities does provide enough incentive for businesses to continue investing in R&D.
Based on the research conducted I recommend that businesses continue to invest in R&D and strive to be innovative so that businesses and the economy grow together. I would also recommend businesses find methods to calculate future economic benefits and useful life because there are obvious future benefits that are not recognized. My last recommendation is that those who utilize the tax credit need to be more aggressive with it and push for congress to make it permanent.
This thesis recognizes the limitations of the research and that includes a lack of time due to my class schedule, classwork and work schedule. There was a lack of professionals with R&D experience, leaving a survey out as a method of gathering data.