How are research and development costs treated for financial reporting under U.S. GAAP?

• A. R&D costs are capitalized as intangible assets.
• B. R&D costs are expensed as incurred only when products are commercialized.
• C. R&D costs are amortized over the expected life.
• D. R&D costs are generally expensed as incurred.

Answer: (D)

Under U.S. GAAP, research and development costs are expensed as incurred. This means you recognize the costs in the period they are spent rather than recording them as assets. The reason is that the future economic benefits from R&D are uncertain and the costs typically do not meet the criteria for asset recognition at the time they are incurred. Treating them as period costs helps avoid overstating assets and income. There are specific exceptions, such as certain software development costs that can be capitalized once feasibility is established or costs associated with acquiring an intangible asset, but for ordinary R&D activities, the default treatment is to expense as incurred.