Final answer:
The cost of equipment purchased for a research and development project is capitalized and expensed over its useful life. This matches the expense with the revenue it helps to generate. Once retired, any remaining value is written off.
Step-by-step explanation:
When a company purchases equipment specifically for a research and development project, the cost of this equipment is typically capitalized and expensed over its useful life. This accounting treatment aligns with the concept of matching expenses with the revenue they help to generate over time. Capitalizing an asset on the balance sheet and then amortizing or depreciating it over its useful life ensures that the cost of the equipment is spread out and matched with the benefits it produces throughout its period of use. This approach applies to various types of investment expenditure, which broadly include producer's durable equipment and software, nonresidential structures, changes in inventories, and residential structures.
Firms have numerous options to raise the financial capital necessary for such investments. They can secure funding from early-stage investors, reinvest profits, obtain loans through banks or bond issuances, or issue stock to the public. Each of these funding sources has its own implications on how investments are financed and ultimately how they are accounted for in the company's financial records. For research and development equipment, once the asset is no longer in use, or is retired, any remaining book value not yet expensed would be written off at that point.