Research and Development (R&D)

Updated on January 3, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Research and Development Definition

Research and Development is an actual pre-planned investigation with the expectation of gaining new scientific or technical knowledge that can convert into a scheme or formulation for manufacturing/supply/trading etc. resulting in a business advantage.

R&D’s cost is debited in the income statementIncome StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements.read more as an expense/capitalized in the relevant assets (depending upon the nature of R&D) of that period they incurred. Its cost, once written off, can’t be reinstated. Many countries have specific guidelines and accounting standards for implementing research and development.

Types of R&D (Research and Development)

Research and Development (R&D)

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There are three types of R&D.

#1 – Basic Research

Basic research is a theoretical approach to any subject. This objective aims to get complete knowledge and understanding of one special subject, not a practical situation. This research is also called pure or fundamental research.

#2 – Applied Research

This objective aims to get complete knowledge and understanding of one special subject in a practical situation. This research is an inverse of basic research. This research is formulated to solve a practical problem.

#3 – Development Research

This Research is a combination of applied and basic research. This research will be implemented after getting knowledge and understanding of a specific task/subject from the basic and applied research.

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Advantage

Disadvantage

  • Research and development have increased the cost of the company. Its outcomes can be positive and negative.
  • Separate Manpower to be hired by the entity for doing R&D and this will increase the cost of the company.
  • It is a very difficult process, and highly experienced and well–qualified human resources are required to do the research and development (R&D).
  • It can produce artificial outcomes.
  • Failure in R&D will not be increased in sales volume and revenue as well.
  • Whether an Entity gets positive or negative outcomes, Product costs are increased by the R&D cost, and increases in product prices can be decreased in sales volume.

Limitation of Research and Development

Important Points about R&D

This has been a guide to what is Research and Development (R&D) and its definition. Here we discuss the three types of R&D along with the advantages and disadvantages. You can learn more from the following articles –

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