Capitalization of software development costs

In the United States, Accounting Standards Codifications 985 provides guidelines for accounting for the costs of software intended to be sold, leased, or otherwise marketed. These guidelines allow software companies to capitalize certain new product or product enhancement development costs.

To properly account for software development costs, software companies should consider and thoroughly document the following:

  1. When is “technological feasibility” established?
  2. What costs can be considered for capitalization?
  3. Is the method used to amortize capitalized costs accurate?

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