Accounting for Software to Be Sold or Licensed - What CPAs Need to Know 

Course Overview

This course covers the accounting for costs of software that's developed to be sold, leased, or marketed, based on the guidance in ASC 985-20. We'll focus on how to assess technological feasibility and why it matters when deciding whether software development costs should be expensed or capitalized. The course also walks through the related reporting and disclosure requirements under GAAP. 

Learning Objectives

Upon completion of this course, you will be able to:

• Distinguish between internal use software and software to be sold

• Recognize software that is within the scope of ASC Topic 985-20

• Identify how software costs are recorded prior to and after establishing technological feasibility

• Recognize how amortization is recorded for capitalized software costs

• Identify general presentation and disclosure requirements related to software for resale 

Introduction

When it comes to accounting for software, it helps to think about it in two separate buckets. The first bucket is internal-use software. As the name implies, this is software that a company develops or buys to use in its own operations. It's not intended for sale or external use, so it's not a revenue-generating asset. The accounting guidance for internal-use software falls under ASC 350-40. The second bucket, which is the focus of this course, is software that's developed with the intent to be sold, leased, or otherwise marketed to customers. This type of software is designed to generate revenue, and the applicable accounting guidance is found in ASC 985-20.

It's important to be clear about what this course does and doesn't cover. We're not focusing on the revenue side of software sales. The rules for recognizing revenue from software sales fall under ASC 606. Instead, this course zeroes in on the cost side. Specifically, the costs incurred to develop software that will eventually be sold to customers.

We'll walk through what it means for software to reach technological feasibility, how that point affects whether costs are expensed or capitalized, and what needs to be disclosed in the financial statements. The goal is to help you understand how to apply ASC 985-20 in real-world situations where software development and financial reporting intersect.