incur

(verb)

To render somebody liable or subject to.

Related Terms

Examples of incur in the following topics:

  • Cost of Interest During Construction

    • The amount of interest cost incurred and/or paid during an asset's construction phase is part of an asset's cost on the balance sheet.
    • The amount of cash borrowed will incur interest expense to the borrower; the interest paid by the borrower serves as interest income to the lender.
    • The cost of interest incurred and/or paid is included as part of the historical cost of the asset under construction.
    • If any delays occur during the construction phase, the interest costs incurred during the delay are not capitalized.
    • When the asset's construction is complete and the asset is ready for use, any additional interest expense incurred is no longer capitalized as part of the asset's cost.

  • Current Guidelines for Expense Recognition

    • For an expense to be recognized under the matching principle, it must be both incurred and offset against recognized revenues.
    • For an expense to be recognized, the obligation must be both incurred and offset against recognized revenues.
    • An expense is incurred when the underlying good is delivered or service is performed.
    • Under the matching principle, the expense related to the raw material is not incurred until delivery.
    • Generally, an expense being incurred is insufficient for it to be recognized.

  • The Importance of Timing: Revenue and Expense Recognition

    • Revenue is recognized when earned and payment is assured; expenses are recognized when incurred and the revenue associated with the expense is recognized.
    • Accounting standards require that companies using the accrual basis of accounting and match all expenses with their related revenues for the period, so that the income statement shows the revenues earned and expenses incurred in the correct accounting period.
    • The matching principle, part of the accrual accounting method, requires that expenses be recognized when obligations are (1) incurred (usually when goods are transferred, such as when they are sold or services rendered) and (2) the revenues that were generated from those expenses (based on cause and effect) are recognized.
    • While the costs associated with the wood were incurred and paid for during January, the expense would not be recognized until February 15th when the soldiers that the wood was used for were sold.

  • Reporting Intangibles

    • The cost of created intangibles is generally expensed as incurred.
    • Therefore, even though a company may incur substantial research and development costs to create an intangible, these costs are expensed.
    • Some argue that the costs incurred internally to create intangibles bear no relationship to their real value.
    • And others argue that due to the underlying subjectivity related to intangibles, a conservative approach should be followed—that is, expense as incurred.
    • The costs of acquiring and defending a copyright may be capitalized, but the research and development costs involved must be expensed as incurred.

  • Loss Contingencies

    • A loss contingency may be incurred by the entity based on the outcome of a future event, such as litigation.
    • A loss contingency is incurred by the entity based on the outcome of a future event, such as litigation.
    • At least a minimum amount of the loss expected to be incurred is accrued.

  • Accounting for R&D Activity

    • Research and development costs are the costs incurred in a planned search for new knowledge and in translating such knowledge into new products or processes.
    • Due to the difficulty of determining the costs applicable to future benefits, many companies expensed all such costs as incurred.
    • Other companies capitalized those costs that related to proven products and expensed the rest as incurred.
    • As a result of these varied accounting practices, in 1974 the Financial Accounting Standards Board in Statement No. 2 ruled that firms must expense all research and development costs when incurred, unless they were directly reimbursable by government agencies and others.

  • Importance of Recognition and Measurement

    • According to the matching principle in accrual accounting, expenses are recognized when obligations are incurred—regardless of when cash is paid out.
    • Cash can be paid out in an earlier or later period than the period in which obligations are incurred.
    • In cash accounting, on the other hand, expenses are recognized when cash is paid out, regardless of when obligations are incurred through transfer of goods or rendition of services.
    • It reduces noise from the timing mismatch between when costs are incurred and when revenue is realized.

  • Reporting Contingencies

    • Contingencies are reported as liabilities if it is probable they will incur a loss, and their amounts can be reasonably estimated.
    • Contingencies are reported as liabilities on the balance sheet and/or disclosed in the notes to the financial statements when it is probable they will incur a loss and when the loss can be reasonably estimated.

  • Cost of Buildings

    • They also can incur substantial maintenance costs, which are expensed on the income statement and reduce an accounting period's income.
    • The cost of a building can include construction costs and other costs incurred to put the building into use.

  • Reporting R&D Cost

    • A cost which cannot be deducted in the year in which it is paid or incurred must be capitalized.
    • It is the company for whom the work has been performed that reports these costs as R&D and expenses them as incurred.