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R&D
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R&D stands for Research & Development, which is an activity that a company undertakes to develop new products or services, or methods of production. R&D is therefore driven by the profit motive, but accounting treatment of R&D is conceptually problematic. To clarify exactly what R&D is from an accounting perspective, FASB has issued precise definitions of both research and development. In the US, GAAP dictates that R&D expenditures be booked as expenses, rather than capitalized. Treating R&D as an expense is conservative. However, conceptually R&D results may be assets that determine a company’s future potential. Some exceptions to R&D accounting rules are made. For example, extraction industries (oil and mining companies) have the option to capitalize and depreciate or amortize certain seemingly R&D expenditures related to their activities, such as drilling and exploration.
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