Question

What do you think about R&D being deducted from revenue? (hint: think about accounting, how do accountants try to match expenses with revenue?

Does the deduction of R&D adhere to the general rule of matching expenses and revenue)?

Answer 1

Research and development costs are costs which are incurred by a firm in developing new products which generate revenue for the business. Since it is expense it is deducted from revenue. The cost is exclusively incurred for developing new products. New products are launched by firms after extensive research and incurring costs of development of formulas for manufacture. Hence it is justified to reduce this expense from revenue since it contributes to generate of revenue.

Yes, the deduction of R & D expenses adheres to the general rule of matching expenses and revenue. The reason being revenues generated from new products are matched with expenses incurred in developing the product. However it should be noted that the matching principle does not apply for each period since R & D cost is one time cost till product is launched but revenue is generated over a period of time.