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Immediate recognition as an expense best describes the current method of accounting for research and development costs.
The US generally accepted accounting rules include a minor but crucial component known as the expense recognition principle (GAAP). Income statements and balance sheet numbers can be distorted by improper expense recognition, resulting in restated financial results.
The most natural way to record an expense is through immediate recognition. With this approach, we count an expense as soon as it is incurred. For instance, we are able to rapidly identify fixed recurring costs like rent, utilities, and selling prices.
Those companies that use accrual accounting apply the matching concept. Since you will record expenses and revenues as cash comes into or leaves your accounts, the expense recognition principle does not apply to you if you utilize cash accounting.
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