A common theme we see with our credit union clients revolves around one thing: keeping the credit union up-to-date by utilizing the best accounting software available. Not only can new software improve operations, but it can also translate to greater member service. From core data processor conversions to data visualization tools, you want to make sure you categorize your costs of software appropriately.

ASC 350 states that only certain costs can be capitalized for internally-developed software, while the remainder should be expensed. Generally speaking, the costs of software can be grouped into three main phases:

Phase 1

Preliminary – All initial costs related to the preliminary stage of software development should be expensed as incurred. Preliminary costs often include planning meetings, software requirement analyses, supplier demonstrations, and final selection procedures.

Phase 2

Application development – Costs associated with the actual development of the accounting software should be capitalized and depreciated over the determined useful life of the software. Costs that should be capitalized include payroll costs for employees directly involved for developing code, materials or services consumed in the process of development, and capitalization of interest costs. Other certain costs, like data conversion and administrative costs, should be expensed as incurred.

Phase 3

Post-implementation – After implementing ASC 350, costs incurred after the coding and development phases of a project should be expensed as incurred. These costs include training and maintenance costs.

While it is easy to group these three phases on paper, the reality is much more complicated. With an increase in agile software development over the conventional “waterfall” method, costs related to software can blend between phases. GBQ’s expertise can help guide you through the accounting practices over software costs from planning to implementation. Contact your GBQ advisor to discuss the classification of your specific accounting software costs and expenditures.


Article written by:
Trevor Walsh, CPA
Assurance Senior


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