Reconciling R&D supplies to accounting records is an important part of supporting the supply component of qualified research expenses. This page explains how to reconcile supply QREs to accounting records. It is educational and is not individualized advice. For the supply framework, see our page on supplies.
Why Supply Reconciliation Matters
Supply reconciliation helps support the accuracy of the supply QREs by connecting them to purchase and usage records. The IRS has noted that studies which fail to connect specific projects and activities to the underlying costs can fail to establish the required nexus.
What to Reconcile
The supply reconciliation involves:
- Total supplies — the total supply QREs.
- Consumed supplies — verifying that the supplies were consumed or used in qualified research.
- Capital property exclusion — verifying that depreciable property was excluded.
- Project nexus — connecting supplies to specific qualified research projects and business components.
For more on supplies, see our page on supplies documentation.
How to Reconcile
A useful reconciliation approach involves:
- Identify the supply QRE total — the total supply QREs.
- Identify the purchase total — the total supply purchases from accounting records.
- Connect QREs to purchases — connect the supply QREs to specific purchase records.
- Document the capital-property distinction — document that depreciable property was excluded.
- Document the project nexus — document which projects and business components the supplies were used in.
- Address differences — explain any differences between the QRE total and the purchase total (e.g., supplies used in non-qualified activities, capital items excluded).
Hypothetical Example
Consider a manufacturer that has supply QREs of $50,000. The company reconciles this to accounting records by showing the total supply purchases ($80,000), the exclusion of capital equipment ($20,000), the allocation of supplies used in non-qualified activities ($10,000), and the resulting supply QRE ($50,000). This reconciliation helps support the accuracy and nexus of the supply QREs.
This example is illustrative only.
Key Takeaway
Reconciling R&D supplies to accounting records involves connecting supply QREs to purchase and usage records, distinguishing consumed supplies from capital property, and supporting the project nexus. Because reconciliation is fact-specific, professional review is appropriate.