Study the difference between capitalization and expensing of expenses: the nature of expenditures is different, the relevant content is as follows:
Capitalization and expensing are both accounting concepts, capitalized expenditures are the Expenditures are classified into fixed asset accounts, while expensed expenditures are treated as costs and immediately included in profits.
1. Definition
Capitalization and expensing of research costs are two concepts in accounting. The former refers to including R&D expenditures in the company’s balance sheet, while the latter refers to Refers to including R&D expenditures in the company's income statement.
2. Expenditure objects
Capitalization and expensing target different expenditure objects. Capitalization is the classification of identifiable expenditures with specific laws and circumstances into fixed asset accounts, while expensing is the direct inclusion of expenditures into revenue and profits and becomes current expenses.
3. Calculation method
The calculation methods of capitalization and expense are also different. Capitalization is to split the expenditure into multiple years of expenditure and depreciate it at an appropriate time in the future, while expensing is to include the full expenditure as a current expenditure in the income statement.
4. Processing principles
When processing research expenses, companies should operate in accordance with relevant processing principles or policy specifications. Generally speaking, if the enterprise's R&D project has clear economic benefits, it can be capitalized; if the benefits of the R&D project are uncertain or difficult to estimate, it should choose expense.
5. Accounting policies
The capitalization and expense of research expenses will be affected by different accounting policies. Under the International Financial Reporting Standards (IFRS) framework, companies can capitalize R&D expenditures that meet certain conditions as assets, while under US Financial Accounting Standards (US GAAP), companies are required to expense all R&D expenditures.
6. Cost offset and profit impact
The capitalization and expense of research expenses also have different impact on the cost offset and profit of the enterprise. Capitalization can spread R&D expenditures over a longer period of time, thereby reducing current cost offsets and having a smaller impact on current profits; while expensing will increase current cost offsets and have a significant impact on current profits.
7. Legal, regulatory and tax compliance
Since the capitalization and expense of research expenses have different impacts on the company’s financial position, the treatment of research expenses usually involves relevant legal, regulatory and tax compliance issues.
For example, in some countries and regions, capitalization can obtain more tax benefits and be supported by tax regulations; but some countries stipulate that R&D expenditures must be carried out before becoming an invention or patent. Expenses to resolve tax issues.
Summary:
Research on the capitalization and expense of expenses is an important issue in corporate accounting. Enterprises need to make choices based on actual conditions and the requirements of international and local laws and regulations in order to meet different financial needs.
When making decisions, companies need to consider factors such as the nature of expenditures, expenditure objects, calculation methods, accounting policies, cost offsets and profit impacts, laws, regulations, and tax compliance to ensure that the decisions taken The processing method can effectively reduce the cost of the enterprise and create higher profits.