Date of Award


Degree Type


Degree Name

Master of Science in Accounting



First Advisor

Theodore Stefan


Along with the significant increase in research and development programs and expenditures over the past few decades, various benefits and problems have been created. A major accounting problem related to R & D expenditures is the determination of a proper method of allocating R & D costs over fiscal periods. Three methods of allocating such costs are: (1) charging the costs against income for the period incurred, (2) capitalizing the costs and amortizing against future income, and (3) providing for the costs before they are incurred through the use of an accrual account.

The primary purpose of the study is to discuss the validity of the methods presented above, in line with such accounting principles as the proper matching of revenue and expense and conservatism in stating asset values, and to indicate the method that should be generally preferred in practice. The major limitation of the study is that it excludes the costs of exploration and development of natural resources and research performed by any governmental agency, university, or non-profit organization.

The primary sources of data used include various publications found in college and public libraries, technical reports, and a questionnaire created by the author and mailed to various business firms throughout the nation. Also, several oral discussions with persons associated with R & D programs or accounting for related expenditures provided additional information for the study.

In developing the study, the background of the broad area of R & D growth worldwide, and in the United States, is presented in the first section, along with the causal reasons for such growth.

The methods of allocating R & D costs over fiscal periods and the supporting reasons for each method are presented in the second section. Also, the results of a national survey conducted by the author to obtain up-to-date information relating to the types of applied research performed and allocation methods used in private industry are presented.

In the third section, some methods of planning and controlling R & D costs, vital in aiding the proper allocation of such costs, are reviewed.

In the fourth section, conclusions and implications are presented. The basic conclusion drawn from the findings of the study is that most industrial firms performing research and development, whether it be pure, applied, or a combination of both, tend to charge such costs against the current income of a given period. Only under certain situations was capitalizing of R & D costs advocated, while the use of the accrual method was found to be rather rare.

Some of the reasons supporting the usage of the expensing method are: (1) conservatism in stating values is necessary when dealing with elements such as R & D, (2) research is normally regarded as a continuing function, and expenditures thereon are regarded as annual recurring costs similar to other operating expenses, (3) benefits derived from specific research project expenditures are generally uncertain in nature, and several accounting periods may pass before the success or failure of a given project becomes apparent. To defer costs of a project until the results are known could cause an overstatement of a. firm's asset values. The overall study leads the author to recommend the use of the expensing method by industry for allocating research and development costs over fiscal periods.



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