As used in these reports, R&D refers to research and development activities in the sciences and engineering as well as R&D facilities. The definitions below are used by the National Science Foundation, the Office of Management and Budget, and federal agencies in reporting R&D funding data.

Research is systematic study directed toward more complete scientific knowledge or understanding of the subject studied. The federal government classifies research as either basic or applied according to the objective of the sponsoring agency.

• In basic research the objective is to gain knowledge or understanding of phenomena without specific applications in mind.
• In applied research the objective is to gain knowledge or understanding necessary for meeting a specific need.

Development is the systematic use of the knowledge or understanding gained from research for the production of materials, devices, systems, or methods, including design, development, and improvement of prototypes and new processes. It excludes quality control, routine product testing, and production.

R&D funding normally includes those personnel, program supervision, and administrative support costs directly associated with R&D activities. Laboratory equipment is also included. Defense R&D also includes testing, evaluation, prototype development, and other activities which precede actual production.

Funding for R&D facilities includes construction, repair, or alteration of physical plant (reactors, wind tunnels, particle accelerators, or laboratories) used in the conduct of R&D. It also includes capital (major) equipment used in the conduct of R&D.

The federal R&D funding data presented by AAAS are provided in terms of budget authority. Budget authority is the initial budget parameter for congressional action on the President's proposed budget.

Other R&D data sources (such as National Science Foundation R&D funding reports) may express R&D funding in terms of obligations or outlays. There are also R&D data sources which obtain funding data from funding recipients (companies, universities) rather than from funding sources (agencies).

Budget authority is the legal authorization to expend funds. Budget authority is most commonly granted in the form of annual appropriations by Congress.

Obligations represent orders placed, contracts awarded, services received, and similar transactions during a given period, regardless of when the funds were appropriated and when the future payment of money is required.

Outlays represent checks issued and cash payments made during a given period, regardless of when the funds were appropriated or obligated. (Outlays are equivalent to expenditures.)

As an example, Congress may appropriate $100 million to NASA for FY 2000 for an R&D laboratory. NASA may then issue contracts to build the lab and sign $50 million of the contracts in FY 2000 and $50 million in FY 2001. Upon completion of the lab in FY 2001 NASA may then write checks to the contractors for total of $100 million. Budget authority would be $100 million in FY 2000; obligations would be split $50 million each in FY 2000 and FY 2001; outlays would be $100 million in FY 2001. In the federal budget process, there is normally a lag between budget authority and outlays for large capital projects and research contracts; for expenses such as staff salaries, budget authority and outlays usually occur in the same year.