# ASC 350-40: Intangibles—Goodwill and Other — Internal-Use Software

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/350/40/)

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## ASC 350-40: Intangibles—Goodwill and Other — Internal-Use Software

### Machine-generated study aids

```json
{
  "summary": "ASC 350-40 governs the accounting for costs of computer software acquired, developed, or modified solely for an entity's internal needs (with no substantive plan to market it externally), and for implementation costs of hosting arrangements that are service contracts. Under current guidance, preliminary project stage costs and training/data conversion costs are expensed, while internal and external direct costs incurred during the application development stage are capitalized (350-40-25-1 through 25-6) once management authorizes and commits funding and completion is probable (350-40-25-12). Capitalized amounts are amortized straight-line beginning when the software is ready for its intended use (350-40-35-4 through 35-6) and tested for impairment under Section 360-10-35.",
  "key_points": [
    "Software is 'internal use' only if it is acquired, internally developed, or modified solely to meet internal needs AND no substantive plan exists or is being developed to market it externally (350-40-15-2A); a past practice of both using and selling software creates a rebuttable presumption the software is intended for sale (350-40-15-2C).",
    "Preliminary project stage costs are expensed as incurred and application development stage costs are capitalized, while training, data conversion (except access/conversion software), maintenance, general and administrative, and overhead costs are expensed (350-40-25-1 through 25-6; 350-40-30-3).",
    "Only external direct costs of materials and services, payroll and payroll-related costs of employees devoting time directly to the project, and interest under Subtopic 835-20 may be capitalized (350-40-30-1); multiple-element prices are allocated based on relative standalone price (350-40-30-4).",
    "Capitalization begins when the preliminary project stage is complete, management with relevant authority authorizes and commits funding, and completion is probable (350-40-25-12), and ceases no later than when the project is substantially complete and ready for its intended use, that is, after all substantial testing (350-40-25-14).",
    "A hosting arrangement is a software license within this Subtopic only if the customer can take possession of the software at any time without significant penalty and it is feasible to run or host it elsewhere (350-40-15-4A); otherwise it is a service contract whose capitalized implementation costs are amortized over the hosting term and presented in the same income statement, balance sheet, and cash flow lines as the hosting fees (350-40-35-13; 350-40-45-1 through 45-3).",
    "Amortization is straight-line unless another systematic and rational basis is more representative and begins per module when it is ready for its intended use (350-40-35-4 through 35-6); unamortized costs of replaced software are expensed when the new software is ready for use (350-40-25-15).",
    "Impairment follows Section 360-10-35; when it is no longer probable the software will be completed and placed in service, the asset is reported at the lower of carrying amount or fair value less costs to sell, with a rebuttable presumption that fair value is zero (350-40-35-1 through 35-3). ASU 2025-06 (effective for annual periods beginning after December 15, 2027; 350-40-65-4) replaces the project-stage model with a probable-to-complete threshold that is not met while significant development uncertainty exists (350-40-25-12A)."
  ],
  "categories": [
    "Recognition",
    "Initial measurement",
    "Subsequent measurement",
    "Intangibles and goodwill"
  ],
  "audience_level": "intermediate",
  "student_note": "Exam questions almost always hinge on the stage in which a cost was incurred (preliminary = expense, application development = capitalize, postimplementation training/maintenance = expense) and on whether a cloud arrangement conveys a software license under 350-40-15-4A. A common misunderstanding is assuming every cost incurred during the application development stage is capitalized — training and most data conversion costs are expensed based on their nature, not their timing (350-40-55-4).",
  "related_topics": [
    "985-20",
    "350-30",
    "360-10",
    "730-10",
    "835-20",
    "720-35"
  ],
  "key_concepts": [
    "internal-use software",
    "preliminary project stage",
    "application development stage",
    "hosting arrangement that is a service contract",
    "implementation costs",
    "significant development uncertainty",
    "probable-to-complete recognition threshold",
    "upgrades and enhancements"
  ]
}
```

Source downloaded (UTC): 2026-09-10T00:02:14.508Z to 2026-09-10T00:02:14.508Z

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## ASC 350-40-00: 00 Status

[Read section](https://asc.understandingaccounting.org/asc/350/40/#00-status)

SEC content: no

##### [350-40-00-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-00-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:14.508Z to 2026-09-10T00:02:14.508Z

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The following table identifies the changes made to this Subtopic.

<table class="asc-table" id="SL51794693-162235"><tbody><tr><td class="entry"><strong class="ph b">Paragraph</strong></td><td class="entry"><strong class="ph b">Action</strong></td><td class="entry"><strong class="ph b">Accounting Standards Update</strong></td><td class="entry"><strong class="ph b">Date</strong></td></tr><tr><td class="entry"></td><td class="entry"></td><td class="entry"></td><td class="entry"></td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/c/#contract" class="term" title="An agreement between two or more parties that creates enforceable rights and obligations."><span>Contract</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2014-09/" class="xref">Accounting Standards Update No. 2014-09</a></td><td class="entry">05/28/2014</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/c/#customer" class="term" title="A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration."><span>Customer</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2014-09/" class="xref">Accounting Standards Update No. 2014-09</a></td><td class="entry">05/28/2014</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement" class="term" title="In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis."><span>Hosting Arrangement</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement" class="term" title="In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis."><span>Hosting Arrangement</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2015-05/" class="xref">Accounting Standards Update No. 2015-05</a></td><td class="entry">04/15/2015</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#performance-requirements" class="term" title="(P) December 16, 2027; (N) December 16, 2027 350-40-65-4 Performance requirements are what an entity needs the software to do (for example, functions or features)."><span>Performance Requirements</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><strong class="ph b">Preliminary Project Stage</strong></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#probable" class="term" title="The future event or events are likely to occur."><span>Probable</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#public-business-entity" class="term" title="A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."><span>Public Business Entity</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/asc-pdf/GUID-86B34FCD-7B0A-4349-8682-E212043FD47A.pdf" class="pdf-link" target="_blank" rel="noopener">Maintenance Update 2017-06 (PDF)</a></td><td class="entry">04/07/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#public-business-entity" class="term" title="A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."><span>Public Business Entity</span></a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/asc-pdf/GUID-8C0B93FE-237A-4BFA-8880-FE749B3CAFCB.pdf" class="pdf-link" target="_blank" rel="noopener">Maintenance Update 2016-11 (PDF)</a></td><td class="entry">06/27/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/p/#public-business-entity" class="term" title="A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."><span>Public Business Entity</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2015-05/" class="xref">Accounting Standards Update No. 2015-05</a></td><td class="entry">04/15/2015</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/r/#revenue" class="term" title="Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations."><span>Revenue</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2014-09/" class="xref">Accounting Standards Update No. 2014-09</a></td><td class="entry">05/28/2014</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/glossary/s/#standalone-price" class="term" title="The price at which a customer would purchase a component of a contract separately."><span>Standalone Price</span></a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"></td><td class="entry"></td><td class="entry"></td><td class="entry"></td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1" class="xref">350-40-05-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1A" class="xref">350-40-05-1A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1B" class="xref">350-40-05-1B</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1" class="xref">350-40-05-1 through 05-1B</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1D" class="xref">350-40-05-1D</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1C" class="xref">350-40-05-1C through 05-1F</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-2" class="xref">350-40-05-2 through 05-5</a></div></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-7" class="xref">350-40-05-7</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-8" class="xref">350-40-05-8</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-9" class="xref">350-40-05-9</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-05-10" class="xref">350-40-05-10</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-1" class="xref">350-40-15-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2" class="xref">350-40-15-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2" class="xref">350-40-15-2</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2A" class="xref">350-40-15-2A through 15-2C</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-3" class="xref">350-40-15-3 through 15-4A</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4" class="xref">350-40-15-4</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2015-05/" class="xref">Accounting Standards Update No. 2015-05</a></td><td class="entry">04/15/2015</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4C" class="xref">350-40-15-4C</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4A" class="xref">350-40-15-4A through 15-4C</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2015-05/" class="xref">Accounting Standards Update No. 2015-05</a></td><td class="entry">04/15/2015</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4D" class="xref">350-40-15-4D</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-5" class="xref">350-40-15-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-8" class="xref">350-40-15-8</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-15-9" class="xref">350-40-15-9</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-1" class="xref">350-40-25-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-2" class="xref">350-40-25-2</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-3" class="xref">350-40-25-3</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-4" class="xref">350-40-25-4</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-5" class="xref">350-40-25-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-5" class="xref">350-40-25-5</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-6" class="xref">350-40-25-6 through 25-11</a></div></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-7" class="xref">350-40-25-7</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2017-04/" class="xref">Accounting Standards Update No. 2017-04</a></td><td class="entry">01/26/2017</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12" class="xref">350-40-25-12</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A" class="xref">350-40-25-12A</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-13" class="xref">350-40-25-13</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-16" class="xref">350-40-25-16</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2015-05/" class="xref">Accounting Standards Update No. 2015-05</a></td><td class="entry">04/15/2015</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17" class="xref">350-40-25-17</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17A" class="xref">350-40-25-17A through 25-17J</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-25-18" class="xref">350-40-25-18</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-30-1" class="xref">350-40-30-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-30-4" class="xref">350-40-30-4</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-30-5" class="xref">350-40-30-5</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-35-3" class="xref">350-40-35-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-35-8" class="xref">350-40-35-8</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2014-09/" class="xref">Accounting Standards Update No. 2014-09</a></td><td class="entry">05/28/2014</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-35-11" class="xref">350-40-35-11 through 35-17</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-45-1" class="xref">350-40-45-1 through 45-3</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-50-1" class="xref">350-40-50-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-50-1" class="xref">350-40-50-1</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-50-2" class="xref">350-40-50-2</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-50-3" class="xref">350-40-50-3</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2024-03/" class="xref">Accounting Standards Update No. 2024-03</a></td><td class="entry">11/04/2024</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-50-3" class="xref">350-40-50-3</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-55-3" class="xref">350-40-55-3</a></td><td class="entry">Superseded</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-55-4" class="xref">350-40-55-4</a></td><td class="entry">Amended</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><div class="xref-range displayInline"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-55-5" class="xref">350-40-55-5 through 55-21</a></div></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-65-1" class="xref">350-40-65-1</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2015-05/" class="xref">Accounting Standards Update No. 2015-05</a></td><td class="entry">04/15/2015</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-65-2" class="xref">350-40-65-2</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2016-19/" class="xref">Accounting Standards Update No. 2016-19</a></td><td class="entry">12/14/2016</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-65-3" class="xref">350-40-65-3</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2018-15/" class="xref">Accounting Standards Update No. 2018-15</a></td><td class="entry">08/29/2018</td></tr><tr><td class="entry"><a href="https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4" class="xref">350-40-65-4</a></td><td class="entry">Added</td><td class="entry"><a href="https://asc.understandingaccounting.org/updates/asu-2025-06/" class="xref">Accounting Standards Update No. 2025-06</a></td><td class="entry">09/18/2025</td></tr></tbody></table>

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## ASC 350-40-05: 05 Overview and Background

[Read section](https://asc.understandingaccounting.org/asc/350/40/#05-overview-and-background)

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##### [350-40-05-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1)

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[Paragraph superseded by Accounting Standards Update No. 2018-15](https://asc.understandingaccounting.org/updates/asu-2018-15/).

##### [350-40-05-1A](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1A)

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[Paragraph superseded by Accounting Standards Update No. 2018-15](https://asc.understandingaccounting.org/updates/asu-2018-15/).

##### [350-40-05-1B](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1B)

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[Paragraph superseded by Accounting Standards Update No. 2018-15](https://asc.understandingaccounting.org/updates/asu-2018-15/).

##### [350-40-05-1C](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1C)

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The Internal-Use Software Subtopic presents guidance in the following Subsections:

1.  a
    
    General
    
2.  b
    
    Implementation Costs of a Hosting Arrangement That Is a Service Contract.

##### [350-40-05-1D](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1D)

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Certain costs incurred for computer software developed or obtained for internal use should be capitalized depending on the nature of the costs and the project stage during which they were incurred in accordance with the guidance in Section 350-40-25. Computer software to be sold, leased, or otherwise marketed externally is not considered to be for internal use.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Certain costs incurred for computer software developed or obtained for internal use should be capitalized in accordance with the guidance in Section 350-40-25. Computer software to be sold, leased, or otherwise marketed externally is not considered to be for internal use.

##### [350-40-05-1E](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1E)

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Section 350-40-30 includes guidance on the types of costs that should be capitalized, including costs for the purchase of internal-use software in a multiple element transaction.

##### [350-40-05-1F](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-1F)

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Section 350-40-35 includes guidance on the following:

1.  a
    
    How to test the internal-use software for impairment
    
2.  b
    
    How to amortize the asset
    
3.  c
    
    How to account for software that previously was considered for internal use, but subsequently was marketed.

##### [350-40-05-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-2)

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[Paragraph superseded by Accounting Standards Update No. 2017-04](https://asc.understandingaccounting.org/updates/asu-2017-04/).

##### [350-40-05-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-3)

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[Paragraph superseded by Accounting Standards Update No. 2017-04](https://asc.understandingaccounting.org/updates/asu-2017-04/).

##### [350-40-05-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-4)

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[Paragraph superseded by Accounting Standards Update No. 2017-04](https://asc.understandingaccounting.org/updates/asu-2017-04/).

##### [350-40-05-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-5)

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[Paragraph superseded by Accounting Standards Update No. 2017-04](https://asc.understandingaccounting.org/updates/asu-2017-04/).

##### [350-40-05-6](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-6)

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Paragraphs

[350-40-55-1 through 55-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-1)

provide examples of when computer software is and is not for internal use.

##### [350-40-05-7](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-7)

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Paragraph [350-40-55-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-3) illustrates the various stages and related processes of computer software development.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

##### [350-40-05-8](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-8)

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[Paragraph superseded by Accounting Standards Update No. 2017-04](https://asc.understandingaccounting.org/updates/asu-2017-04/).

##### [350-40-05-9](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-9)

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[Paragraph superseded by Accounting Standards Update No. 2017-04](https://asc.understandingaccounting.org/updates/asu-2017-04/).

### Implementation Costs of a Hosting Arrangement That Is a Service Contract

##### [350-40-05-10](https://asc.understandingaccounting.org/asc/350/40/#350-40-05-10)

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The Implementation Costs of a Hosting Arrangement That Is a Service Contract Subsections of this Subtopic address the accounting for the implementation, setup, and other upfront costs (implementation costs) incurred in a [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.") that does not meet the criteria in paragraph [350-40-15-4A](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4A).

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## ASC 350-40-15: 15 Scope and Scope Exceptions

[Read section](https://asc.understandingaccounting.org/asc/350/40/#15-scope-and-scope-exceptions)

SEC content: no

#### Overall Guidance

##### [350-40-15-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-1)

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The General Subsection of this Section establishes the pervasive scope for this Subtopic. The General Subsections of this Subtopic follow the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 350-10-15, with specific transaction qualifications and exceptions noted below and in the Implementation Costs of a Hosting Arrangement That Is a Service Contract Subsection.

#### Transactions

##### [350-40-15-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2)

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The guidance in the General Subsections of this Subtopic applies to the following transactions and activities:

1.  a
    
    Internal-use software
    
2.  b
    
    The proceeds of computer software developed or obtained for internal use that is marketed
    
3.  c
    
    New internal-use software developed or obtained that replaces previously existing internal-use software
    
4.  d
    
    Computer software that consists of more than one component or module. For example, an entity may develop an accounting software system containing three elements: a general ledger, an accounts payable subledger, and an accounts receivable subledger. In this example, each element might be viewed as a component or module of the entire accounting software system. The guidance in this Subtopic shall be applied to individual components or modules.
    

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)The guidance in the General Subsections of this Subtopic applies to the following transactions and activities:

1.  a
    
    Internal-use software
    
2.  b
    
    The proceeds of computer software developed or obtained for internal use that is marketed
    
3.  c
    
    New internal-use software developed or obtained that replaces previously existing internal-use software
    
4.  d
    
    Computer software that consists of more than one component or module. For example, an entity may develop an accounting software system containing three elements: a general ledger, an accounts payable subledger, and an accounts receivable subledger. In this example, each element might be viewed as a component or module of the entire accounting software system. The guidance in this Subtopic shall be applied to individual components or modules.
    
5.  e
    
    Costs incurred to develop a website.

##### [350-40-15-2A](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2A)

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Internal-use software has both of the following characteristics:

1.  a
    
    The software is acquired, internally developed, or modified solely to meet the entity's internal needs.
    
2.  b
    
    During the software's development or modification, no substantive plan exists or is being developed to market the software externally.

##### [350-40-15-2B](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2B)

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A substantive plan to market software externally could include the selection of a marketing channel or channels with identified promotional, delivery, billing, and support activities. To be considered a substantive plan, implementation of the plan should be reasonably possible. Arrangements providing for the joint development of software for mutual internal use (for example, cost-sharing arrangements) and routine market feasibility studies are not substantive plans to market software for purposes of this Subtopic. Both characteristics in paragraph [350-40-15-2A](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2A) must be met for software to be considered for internal use.

##### [350-40-15-2C](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2C)

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An entity's past practices related to selling software may help determine whether the software is for internal use or is subject to a plan to be marketed externally. For example, an entity in the business of selling computer software often both uses and sells its own software products. Such a past practice of both using and selling computer software creates a rebuttable presumption that any software developed by that entity is intended for sale, lease, or other marketing.

##### [350-40-15-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-3)

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The General Subsections of this Subtopic provide guidance on when costs incurred for internal-use computer software are and are not capitalized.

##### [350-40-15-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4)

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The guidance in this Subtopic does not apply to the following transactions and activities:

1.  a
    
    Software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process, subject to Subtopic 985-20
    
2.  b
    
    Software to be used in research and development, subject to Subtopic 730-10
    
3.  c
    
    Software developed for others under a contractual arrangement, subject to contract accounting standards
    
4.  d
    
    Accounting for costs of reengineering activities, which often are associated with new or upgraded software applications.
    
5.  e
    
    [Subparagraph superseded by Accounting Standards Update No. 2018-15](https://asc.understandingaccounting.org/updates/asu-2018-15/).

##### [350-40-15-4A](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4A)

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The guidance in the General Subsections of this Subtopic applies only to internal-use software that a customer obtains access to in a [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.") if both of the following criteria are met:

1.  a
    
    The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty.
    
2.  b
    
    It is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software.

##### [350-40-15-4B](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4B)

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For purposes of the guidance in paragraph [350-40-15-4A(a)](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4A), the term _without significant penalty_ contains two distinct concepts:

1.  a
    
    The ability to take delivery of the software without incurring significant cost
    
2.  b
    
    The ability to use the software separately without a significant diminution in utility or value.

##### [350-40-15-4C](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4C)

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Hosting arrangements that do not meet both criteria in paragraph [350-40-15-4A](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4A) are service contracts and do not constitute a purchase of, or convey a license to, software.

##### [350-40-15-4D](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4D)

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Implementation costs of a hosting arrangement that does not meet both criteria in paragraph [350-40-15-4A](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4A) shall be accounted for in accordance with the Implementation Costs of a Hosting Arrangement That Is a Service Contract Subsections of this Subtopic.

##### [350-40-15-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-5)

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Costs of computer software that is sold, leased, or otherwise marketed as a separate product or as part of a product or process are within the scope of Subtopic 985-20. For example, software designed for and embedded in a semiconductor chip is included in the scope of that Subtopic because it is an integral part of the product. By contrast, software for internal use, though it may be used in developing a product, is not part of or included in the actual product or service sold. If software is used by the vendor in the production of the product or providing the service but the customer does not acquire the software or the future right to use it, the software is covered by this Subtopic. For example, for a communications entity selling telephone services, software included in a telephone switch is part of the internal equipment used to deliver a service but is not part of the product or service actually being acquired or received by the customer. Paragraph [350-40-55-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-1) includes examples of computer software considered to be for internal use and thus not part of a product or process. Paragraph [350-40-55-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-2) includes examples of when computer software is not for internal use.

#### Other Considerations

##### [350-40-15-6](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-6)

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The guidance in this Subtopic does not change any of the provisions in the following Subtopics:

1.  a
    
    Subtopic 985-20
    
2.  b
    
    Subtopic 720-45.

##### [350-40-15-7](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-7)

Pending content: no

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The following costs of internal-use computer software are included in research and development and shall be accounted for in accordance with the provisions of Subtopic 730-10:

1.  a
    
    Purchased or leased computer software used in research and development activities where the software does not have alternative future uses
    
2.  b
    
    All internally developed internal-use computer software (including software developed by third parties, for example, programmer consultants) in either of the following circumstances:
    
    1.  1
        
        The software is a pilot project (that is, software of a nature similar to a pilot plant as noted in paragraph [730-10-55-1(h)](https://asc.understandingaccounting.org/asc/730/10/#730-10-55-1)).
        
    2.  2
        
        The software is used in a particular research and development project, regardless of whether the software has alternative future uses.

### Implementation Costs of a Hosting Arrangement That Is a Service Contract

##### [350-40-15-8](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-8)

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The Implementation Costs of a Hosting Arrangement That Is a Service Contract Subsections of this Subtopic follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Section, with specific qualifications noted in paragraph [350-40-15-9](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-9).

##### [350-40-15-9](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-9)

Pending content: no

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The Implementation Costs of a Hosting Arrangement That Is a Service Contract Subsections of this Subtopic provide guidance on when costs incurred to implement a [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.") that does not meet both criteria in paragraph [350-40-15-4A](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-4A) are and are not capitalized.

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## ASC 350-40-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/350/40/#25-recognition)

SEC content: no

#### Preliminary Project Stage

##### [350-40-25-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-1)

Pending content: yes

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Internal and external costs incurred during the [preliminary project stage](https://asc.understandingaccounting.org/glossary/p/#preliminary-project-stage "When a computer software project is in the preliminary project stage, entities will likely do the following: Make strategic decisions to allocate resources between alternative projects at a given point in time. For example, should programmers develop a new payroll system or direct their efforts toward correcting existing problems in an operating payroll system? Determine the performance requirements (that is, what it is that they need the software to do) and systems requirements for the computer software project it has proposed to undertake. Invite vendors to perform demonstrations of how their software will fulfill an entity's needs. Explore alternative means of achieving specified performance requirements. For example, should an entity make or buy the software? Should the software run on a mainframe or a client server system? Determine that the technology needed to achieve performance requirements exists. Select a vendor if an entity chooses to obtain software. Select a consultant to assist in the development or installation of the software. (P) December 16, 2027; (N) December 16, 2027350-40-65-4Paragraph superseded by Accounting Standards Update No. 2025-06.") shall be expensed as they are incurred.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)

<table class="asc-table" frame="top"><tbody><tr><td class="entry"><em class="ph i"><strong class="ph b">Editor's Note</strong>: The content of paragraph 350-40-25-1 will change upon transition, together with a change in the heading noted below.</em></td></tr><tr><td class="entry">&gt; <strong class="ph b">Costs to Be Expensed as Incurred</strong></td></tr></tbody></table>

Internal and external costs incurred prior to meeting the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

shall be expensed as they are incurred.

#### Application Development Stage

##### [350-40-25-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-2)

Pending content: yes

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Internal and external costs incurred to develop internal-use computer software during the application development stage shall be capitalized.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)

<table class="asc-table" frame="top"><tbody><tr><td class="entry"><em class="ph i"><strong class="ph b">Editor's Note</strong>: Paragraph 350-40-25-2 will be will be superseded upon transition, together with its heading.</em></td></tr><tr><td class="entry">&gt; <strong class="ph b">Application Development Stage</strong></td></tr></tbody></table>

[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

##### [350-40-25-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-3)

Pending content: yes

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Effective as of: not established by retrieval timestamps.


Costs to develop or obtain software that allows for access to or conversion of old data by new systems shall also be capitalized.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

##### [350-40-25-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-4)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:4d437b45a3a5dbed838437068865b4dff6c6254aa424b456785b059c28a41c69

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Training costs are not internal-use software development costs and, if incurred during this stage, shall be expensed as incurred.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Internal and external training costs are not internal-use software development costs and shall be expensed as incurred.

##### [350-40-25-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-5)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:1c209d364054c1816fac40f0a514847248632f4bb0e564308d8530cca8e851a1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Data conversion costs, except as noted in paragraph [350-40-25-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-3), shall be expensed as incurred. The process of data conversion from old to new systems may include purging or cleansing of existing data, reconciliation or balancing of the old data and the data in the new system, creation of new or additional data, and conversion of old data to the new system.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Data conversion costs, except as noted in paragraph [350-40-30-1(d)](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-1), shall be expensed as incurred. The process of data conversion from old to new systems may include purging or cleansing of existing data, reconciliation or balancing of the old data and the data in the new system, creation of new or additional data, and conversion of old data to the new system.

#### Postimplementation-Operation Stage

##### [350-40-25-6](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-6)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:4874f449d8062641ddecff57dd0808c3b823723ec8a2081aee48632f6a9649c5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Internal and external training costs and maintenance costs during the postimplementation-operation stage shall be expensed as incurred.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)

<table class="asc-table" frame="top"><tbody><tr><td class="entry"><em class="ph i"><strong class="ph b">Editor's Note</strong>: Paragraph 350-40-25-6 will be will be superseded upon transition, together with its heading.</em></td></tr><tr><td class="entry">&gt; <strong class="ph b">Postimplementation-Operation Stage</strong></td></tr></tbody></table>

[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

#### Upgrades and Enhancements

##### [350-40-25-7](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-7)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:0ac87e25a471356773fb81339d78fb06f8bdc620b07921fe3e0ee16a045c450c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Upgrades and enhancements are defined as modifications to existing internal-use software that result in additional functionality—that is, modifications to enable the software to perform tasks that it was previously incapable of performing. Upgrades and enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. In order for costs of specified upgrades and enhancements to internal-use computer software to be capitalized in accordance with paragraphs

[350-40-25-8 through 25-10](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-8)

, it must be probable that those expenditures will result in additional functionality.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)

<table class="asc-table" frame="top"><tbody><tr><td class="entry"><em class="ph i"><strong class="ph b">Editor's Note</strong>: Paragraph 350-40-25-7 will be will be superseded upon transition, together with its heading.</em></td></tr><tr><td class="entry">&gt; <strong class="ph b">Upgrades and Enhancements</strong></td></tr></tbody></table>

[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

##### [350-40-25-8](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-8)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:fa1868968f36b53092a01aa4075ea84a0754b54a7303b912e44a68210d5dc8a9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Internal costs incurred for upgrades and enhancements shall be expensed or capitalized in accordance with paragraphs

[350-40-25-1 through 25-6](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-1)

.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

##### [350-40-25-9](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-9)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:0c527784efa6316c2b1395cc4b7a61282db6d588fed707385ca5f423efefa896

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Internal costs incurred for maintenance shall be expensed as incurred.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

##### [350-40-25-10](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-10)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:a3ddd3e64dc30ab3ae3afd299fe1a36f346e6bbfc0f3758431870ef9f071508b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entities that cannot separate internal costs on a reasonably cost-effective basis between maintenance and relatively minor upgrades and enhancements shall expense such costs as incurred.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

##### [350-40-25-11](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-11)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:9a4b539e41169df094d05c275be534a8e7350b7fa4dbafc1557906643344dd14

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


External costs incurred under agreements related to specified upgrades and enhancements shall be expensed or capitalized in accordance with paragraphs

[350-40-25-1 through 25-6](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-1)

. If maintenance is combined with specified upgrades and enhancements in a single contract, the cost shall be allocated between the elements as discussed in paragraph [350-40-30-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-4) and the maintenance costs shall be expensed over the contract period. However, external costs related to maintenance, unspecified upgrades and enhancements, and costs under agreements that combine the costs of maintenance and unspecified upgrades and enhancements shall be recognized in expense over the contract period on a straight-line basis unless another systematic and rational basis is more representative of the services received.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

#### Capitalization of Cost

##### [350-40-25-12](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:a09a47fbb309b5538e684242efddba804069bcdb962180f39c8d9e5b64f3ced0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Capitalization of costs shall begin when both of the following occur:

1.  a
    
    Preliminary project stage is completed.
    
2.  b
    
    Management, with the relevant authority, implicitly or explicitly authorizes and commits to funding a computer software project and it is probable that the project will be completed and the software will be used to perform the function intended.
    

Examples of authorization include the execution of a contract with a third party to develop the software, approval of expenditures related to internal development, or a commitment to obtain the software from a third party.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)

<table class="asc-table" frame="top"><tbody><tr><td class="entry"><em class="ph i"><strong class="ph b">Editor's Note</strong>: The content of paragraph 350-40-25-12 will change upon transition, together with a change in the heading noted below.</em></td></tr><tr><td class="entry">&gt; <strong class="ph b">Capitalization of Costs</strong></td></tr></tbody></table>

Capitalization of costs shall begin when both of the following occur:

1.  a
    
    [Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)
    
2.  b
    
    Management, with the relevant authority, implicitly or explicitly authorizes and commits to funding a computer software project.Examples of authorization and commitment to funding a computer software project include the execution of a contract with a third party to develop the software, approval of expenditures related to internal development, or a commitment to obtain the software from a third party.
    
3.  c
    
    It is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that the project will be completed and the software will be used to perform the function intended (referred to as the probable-to-complete recognition threshold). In evaluating whether the probable-to-complete recognition threshold has been met, an entity shall assess whether there is significant uncertainty associated with the development activities of the software (referred to as significant development uncertainty) in accordance with paragraph [350-40-25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A).

##### [350-40-25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:0441a899145e6a39aa38d8629701eb3e1abcd5c53aa8e201ea03efd898b420a5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)If significant development uncertainty exists, the probable-to-complete recognition threshold in paragraph [350-40-25-12(c)](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12) is not met until that significant development uncertainty has been resolved. Significant development uncertainty exists if either of the following factors is present:

1.  a
    
    The software being developed has technological innovations or novel, unique, or unproven functions or features, and the uncertainty related to those technological innovations, functions, or features, if identified, has not been resolved through coding and testing.
    
2.  b
    
    The significant [performance requirements](https://asc.understandingaccounting.org/glossary/p/#performance-requirements "(P) December 16, 2027; (N) December 16, 2027 350-40-65-4 Performance requirements are what an entity needs the software to do (for example, functions or features).") of the software have not been identified, or the identified significant performance requirements continue to be substantially revised.
    

For some types of software projects, the assessment of whether significant development uncertainty exists will be straightforward, such as illustrated in Example 1 (see paragraphs

[350-40-55-5 through 55-8](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-5)

). For other types of software projects, the assessment will be more complex, such as illustrated in Example 3 (see paragraphs

[350-40-55-13 through 55-17](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-13)

). If significant development uncertainty does not exist or if there was significant development uncertainty that has been resolved, an entity shall evaluate the requirements in paragraph [350-40-25-12](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12) to determine when to begin capitalizing costs.

##### [350-40-25-13](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-13)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:478d56a82fbeee04dc864ed934573fd1d61f265b7b3a2f17098ad96585e7102c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


When it is no longer probable that the computer software project will be completed and placed in service, no further costs shall be capitalized, and guidance in paragraphs

[350-40-35-1 through 35-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-1)

on impairment shall be applied to existing balances.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)If the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

are no longer met for software being developed, no further costs shall be capitalized, and guidance in paragraphs

[350-40-35-1 through 35-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-1)

on impairment shall be applied to existing balances.

##### [350-40-25-14](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-14)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:82351f22cade0b321c9ce39ae128b805476c5c8f1aa101ee370526f9cf45d7ab

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Capitalization shall cease no later than the point at which a computer software project is substantially complete and ready for its intended use, that is, after all substantial testing is completed.

##### [350-40-25-15](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-15)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:b39ed1f2cf7093ba22667efff0e414a8fba0d7541e4b3f82a55687b2e4dd0dc6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


New software development activities shall trigger consideration of remaining useful lives of software that is to be replaced. When an entity replaces existing software with new software, unamortized costs of the old software shall be expensed when the new software is ready for its intended use.

##### [350-40-25-16](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-16)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:55a2330de36015af27aae5e6a9447482b0a28df324475e5faa5e89b1996a7ba7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Paragraph superseded by Accounting Standards Update No. 2015-05](https://asc.understandingaccounting.org/updates/asu-2015-05/).

##### [350-40-25-17](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:878b16aa38b581c0af767945e75d48b9b6e8a21ca7df669db4a15c74c1005ee6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entities often license internal-use software from third parties. A software license within the scope of this Subtopic (see paragraphs [350-40-15-1 through 15-4C](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-1)) shall be accounted for as the acquisition of an intangible asset and the incurrence of a liability (that is, to the extent that all or a portion of the software licensing fees are not paid on or before the acquisition date of the license) by the licensee. The intangible asset acquired shall be recognized and measured in accordance with paragraphs [350-30-25-1](https://asc.understandingaccounting.org/asc/350/30/#350-30-25-1) and [350-30-30-1](https://asc.understandingaccounting.org/asc/350/30/#350-30-30-1), respectively.

#### Upgrades and Enhancements

##### [350-40-25-17A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17A)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:bf4f25279ab0e8652f2daf37973616f6ac29c15f41a4391f14d28ef7936de478

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Upgrades and enhancements are defined as modifications to existing internal-use software that result in additional functionality—that is, modifications to enable the software to perform tasks that it was previously incapable of performing. Upgrades and enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. In order for costs of specified upgrades and enhancements to internal-use computer software to be evaluated for capitalization in accordance with paragraphs[350-40-25-17B through 25-17E](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17B)

, it must be probable that those expenditures will result in additional functionality.

##### [350-40-25-17B](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17B)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:92f61936a219917310dcff7787a228c01082e8090c0f00925c81b3821606210e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Internal and external costs incurred for upgrades and enhancements shall be expensed or capitalized in accordance with paragraphs [350-40-25-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-1),

[350-40-25-4 through 25-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-4)

,

[350-40-25-12 through 25-14](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

, and [350-40-25-17](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17).

##### [350-40-25-17C](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17C)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:11112373adecbf4341605405d6fbb0be29242fddcaa5906146f0da3f1de41624

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Internal and external costs incurred for maintenance shall be expensed as incurred.

##### [350-40-25-17D](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17D)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:2e2c6d3cba75e1db143b0892aaf7090f148f5646882bda0a84ba0e4fe3aaa811

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Entities that cannot separate internal costs on a reasonably cost-effective basis between maintenance and relatively minor upgrades and enhancements shall expense such costs as incurred.

##### [350-40-25-17E](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17E)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:83e1ffa631b699820b0399255025b04126d13d1c78fb38e271ff6aeb79486edd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)External costs incurred under agreements related to specified upgrades and enhancements shall be expensed or capitalized in accordance with paragraphs [350-40-25-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-1),[350-40-25-4 through 25-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-4)

,

[350-40-25-12 through 25-14](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

, and [350-40-25-17](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17). If maintenance is combined with specified upgrades and enhancements in a single contract, the cost shall be allocated between the elements as discussed in paragraph [350-40-30-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-4) and the maintenance costs shall be expensed over the contract period. However, external costs related to maintenance, unspecified upgrades and enhancements, and costs under agreements that combine the costs of maintenance and unspecified upgrades and enhancements shall be recognized in expense over the contract period on a straight-line basis unless another systematic and rational basis is more representative of the services received.

#### Additional Considerations for Website Development Costs

##### [350-40-25-17F](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17F)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:b7f1006ed0660e4755a0c1bd487c004ba53a91f6c1c6ceddbdc5fda54347aa1b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Fees incurred for website hosting, which involve the payment of a specified, periodic fee to an internet service provider in return for hosting the website on its server(s) connected to the internet, generally are expensed over the period of benefit.

##### [350-40-25-17G](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17G)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:64f74b9c1eb7c1a8fa23225d99042d28dc3be3e6ce4b655a0230be206dd0ce32

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Accounting for website content involves issues that also apply to other forms of content or information that are not unique to websites. Costs to input content into a website shall be expensed as incurred. Content refers to information included on the website, which may be textual or graphical in nature (although the specific graphics described in paragraph [350-40-25-17H](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17H)are excluded from content). For example, articles, product photos, maps, and stock quotes and charts are all forms of content. Content may reside in separate databases that are integrated into (or accessed from) the web page with software, or it may be coded directly into the web pages.

##### [350-40-25-17H](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17H)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:cca96db433f84743b4d0cf489b816eeae25e23cdb929fb0642ab50db7ba0350b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Graphics are a component of software. The costs of developing initial graphics shall be evaluated for capitalization under this Subtopic for internal-use software, and Subtopic 985-20 for software marketed externally. For purposes of this Subtopic, graphics involve the overall design of the web page (use of borders, background and text colors, fonts, frames, buttons, and so forth) that affect the look and feel of the web page and generally remain consistent regardless of changes made to the content.

##### [350-40-25-17I](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17I)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:2a3fc948c4cb1109989c6eaee91b0c6124a3669059fe6a7761de0aa226825d42

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Costs to register the website with internet search engines represent advertising costs and shall be expensed as incurred under paragraph [720-35-25-1](https://asc.understandingaccounting.org/asc/720/35/#720-35-25-1).

##### [350-40-25-17J](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17J)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:5ccd6d42989742a41ebd8024f2ca60af70a863ad88dd7b1d82d6494259d18c08

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)Costs to obtain and register an internet domain shall be evaluated for capitalization under Section 350-30-25.

### Implementation Costs of a Hosting Arrangement That Is a Service Contract

##### [350-40-25-18](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-18)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:26.447Z to 2026-09-10T00:02:26.447Z

Record version: sha256:bf20a678d36b25c7a061363d2a0531d69b728b1e9d94b279a3a1dbc8180b57ae

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall apply the General Subsection of this Section as though the [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.") that is a service contract were an internal-use computer software project to determine when implementation costs of a hosting arrangement that is a service contract are and are not capitalized.

Source downloaded (UTC): 2026-09-10T00:02:28.885Z to 2026-09-10T00:02:28.885Z

Record version: sha256:3177c19c6fb7c383d3f0ddd4c580e4893c45de777554f8f739f73646cb44665c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 350-40-30: 30 Initial Measurement

[Read section](https://asc.understandingaccounting.org/asc/350/40/#30-initial-measurement)

SEC content: no

#### Capitalizable Cost

##### [350-40-30-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-1)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:28.885Z to 2026-09-10T00:02:28.885Z

Record version: sha256:39582da305f66e5e8fe960d7e6617add333cba034997605819a032d028518943

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Costs of computer software developed or obtained for internal use that shall be capitalized include only the following:

1.  a
    
    External direct costs of materials and services consumed in developing or obtaining internal-use computer software. Examples of those costs include but are not limited to the following:
    
    1.  1
        
        Fees paid to third parties for services provided to develop the software during the application development stage
        
    2.  2
        
        Costs incurred to obtain computer software from third parties
        
    3.  3
        
        Travel expenses incurred by employees in their duties directly associated with developing software.
        
2.  b
    
    Payroll and payroll-related costs (for example, costs of employee benefits) for employees who are directly associated with and who devote time to the internal-use computer software project, to the extent of the time spent directly on the project. Examples of employee activities include but are not limited to coding and testing during the application development stage.
    
3.  c
    
    Interest costs incurred while developing internal-use computer software. Interest shall be capitalized in accordance with the provisions of Subtopic 835-20.
    

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)

<table class="asc-table" frame="top"><tbody><tr><td class="entry"><em class="ph i"><strong class="ph b">Editor's Note</strong>: The content of paragraph 350-40-30-1 will change upon transition, together with a change in the heading noted below.</em></td></tr><tr><td class="entry">&gt; <strong class="ph b">Capitalizable Costs</strong></td></tr></tbody></table>

Costs of computer software developed or obtained for internal use that shall be capitalized include only the following:

1.  a
    
    External direct costs of materials and services consumed in developing or obtaining internal-use computer software. Examples of those costs include but are not limited to the following:
    
    1.  1
        
        Fees paid to third parties for services provided to develop the software
        
    2.  2
        
        Costs incurred to obtain computer software from third parties
        
    3.  3
        
        Travel expenses incurred by employees in their duties directly associated with developing software.
        
2.  b
    
    Payroll and payroll-related costs (for example, costs of employee benefits) for employees who are directly associated with and who devote time to the internal-use computer software project, to the extent of the time spent directly on the project. Examples of employee activities include but are not limited to design of chosen path, including software configuration and software interfaces, coding, installation to hardware, and testing, including parallel processing phase.
    
3.  c
    
    Interest costs incurred while developing internal-use computer software. Interest shall be capitalized in accordance with the provisions of Subtopic 835-20.
    
4.  d
    
    Costs to develop or obtain software that allows for access to or conversion of old data by new systems.

##### [350-40-30-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:28.885Z to 2026-09-10T00:02:28.885Z

Record version: sha256:6df9d2b67c703fd4e81b1738c29dca4db50e048d7816785f4fd2a25a3e97c886

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the entity suspends substantially all activities related to the software developed or obtained for internal use, interest capitalization shall cease until activities are resumed.

##### [350-40-30-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:28.885Z to 2026-09-10T00:02:28.885Z

Record version: sha256:1a644eec59ebd1c44602961cb327fe709edb7428d5c81e8b382308560c41e75a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


General and administrative costs and overhead costs shall not be capitalized as costs of internal-use software.

#### Multiple-Element Arrangements Included in Purchase Price

##### [350-40-30-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:28.885Z to 2026-09-10T00:02:28.885Z

Record version: sha256:a2fce733f48dcae9033c891191e1e79ca362ac17577610162fb75dc0469717c4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entities may purchase internal-use computer software from a third party or may enter into a [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis."). In some cases, the price includes multiple elements, such as the license or hosting, training for the software, maintenance fees for routine maintenance work to be performed by the third party, data conversion costs, reengineering costs, and rights to future upgrades and enhancements. Entities shall allocate the cost among all individual elements. The allocation shall be based on the relative [standalone price](https://asc.understandingaccounting.org/glossary/s/#standalone-price "The price at which a customer would purchase a component of a contract separately.")of the elements in the contract, not necessarily separate prices stated within the contract for each element. Those elements included in the scope of this Subtopic shall be accounted for in accordance with the provisions of this Subtopic.

### Implementation Costs of a Hosting Arrangement That Is a Service Contract

##### [350-40-30-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:28.885Z to 2026-09-10T00:02:28.885Z

Record version: sha256:361c9d08154105812bd35b2bdcf44e0a9288f1ad513b6b11a213656941d32136

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An entity shall apply the General Subsection of this Section as though the [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.") that is a service contract were an internal-use computer software project to determine when implementation costs of a hosting arrangement that is a service contract are and are not capitalized.

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:108a9b404df763d9fa6f9aa93015edc0a84a3b5e12649606069c0cb461a95803

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 350-40-35: 35 Subsequent Measurement

[Read section](https://asc.understandingaccounting.org/asc/350/40/#35-subsequent-measurement)

SEC content: no

#### Impairment

##### [350-40-35-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:62eec78c9edc49bf73963ca310e55a9f1ed7b959c7bb1d94f9cc77e8b500e692

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Impairment shall be recognized and measured in accordance with the provisions of Section 360-10-35, which requires that assets be grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The guidance is applicable, for example, when one of the following events or changes in circumstances occurs related to computer software being developed or currently in use indicating that the carrying amount may not be recoverable:

1.  a
    
    Internal-use computer software is not expected to provide substantive service potential.
    
2.  b
    
    A significant change occurs in the extent or manner in which the software is used or is expected to be used.
    
3.  c
    
    A significant change is made or will be made to the software program.
    
4.  d
    
    Costs of developing or modifying internal-use computer software significantly exceed the amount originally expected to develop or modify the software.

##### [350-40-35-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:811cc5be26fe7609482392c7e9d19f60bf8564796b4baef7cad60a45eddede65

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraphs

[360-10-35-47 through 35-49](https://asc.understandingaccounting.org/asc/360/10/#360-10-35-47)

requires that the asset be accounted for as abandoned when it ceases to be used.

##### [350-40-35-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-3)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:23a761f212875f9ca648ae58bf687ff6f0b6aca7f3898abbcbe08abd0069adb8

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Effective as of: not established by retrieval timestamps.


When it is no longer probable that computer software being developed will be completed and placed in service, the asset shall be reported at the lower of the carrying amount or fair value, if any, less costs to sell. The rebuttable presumption is that such uncompleted software has a fair value of zero. Indications that the software may no longer be expected to be completed and placed in service include the following:

1.  a
    
    A lack of expenditures budgeted or incurred for the project.
    
2.  b
    
    Programming difficulties that cannot be resolved on a timely basis.
    
3.  c
    
    Significant cost overruns.
    
4.  d
    
    Information has been obtained indicating that the costs of internally developed software will significantly exceed the cost of comparable third-party software or software products, so that management intends to obtain the third-party software or software products instead of completing the internally developed software.
    
5.  e
    
    Technologies are introduced in the marketplace, so that management intends to obtain the third-party software or software products instead of completing the internally developed software.
    
6.  f
    
    Business segment or unit to which the software relates is unprofitable or has been or will be discontinued.
    

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)If the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

are no longer met for software being developed, the asset shall be reported at the lower of the carrying amount or fair value, if any, less costs to sell. The rebuttable presumption is that such uncompleted software has a fair value of zero. Indications that the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

are no longer met include the following:

1.  a
    
    A lack of expenditures budgeted or incurred for the project.
    
2.  b
    
    Programming difficulties that cannot be resolved on a timely basis.
    
3.  c
    
    Significant cost overruns.
    
4.  d
    
    Information has been obtained indicating that the costs of internally developed software will significantly exceed the cost of comparable third-party software or software products, so that management intends to obtain the third-party software or software products instead of completing the internally developed software.
    
5.  e
    
    Technologies are introduced in the marketplace, so that management intends to obtain the third-party software or software products instead of completing the internally developed software.
    
6.  f
    
    Business segment or unit to which the software relates is unprofitable or has been or will be discontinued.

#### Amortization

##### [350-40-35-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-4)

Pending content: no

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Record version: sha256:e0bbf218affc2f26a18eda0ed36479af8c1164e2bda7ea7e78119a81e257cce0

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Effective as of: not established by retrieval timestamps.


The costs of computer software developed or obtained for internal use shall be amortized on a straight-line basis unless another systematic and rational basis is more representative of the software's use.

##### [350-40-35-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:33bda494596eec173a00956be5528d952e823d9986f7c65187c6febb13d5c2c8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In determining and periodically reassessing the estimated [useful life](https://asc.understandingaccounting.org/glossary/u/#useful-life "The period over which an asset is expected to contribute directly or indirectly to future cash flows.") over which the costs incurred for internal-use computer software will be amortized, entities shall consider the effects of all of the following:

1.  a
    
    Obsolescence
    
2.  b
    
    Technology
    
3.  c
    
    Competition
    
4.  d
    
    Other economic factors
    
5.  e
    
    Rapid changes that may be occurring in the development of software products, software operating systems, or computer hardware and whether management intends to replace any technologically inferior software or hardware.
    

Given the history of rapid changes in technology, software often has had a relatively short useful life.

##### [350-40-35-6](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:3767b47279c75c2ef10d44b12882cc68b228cd156946ef746966f58b1e04710b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For each module or component of a software project, amortization shall begin when the computer software is ready for its intended use, regardless of whether the software will be placed in service in planned stages that may extend beyond a reporting period. For purposes of this Subtopic, computer software is ready for its intended use after all substantial testing is completed. If the functionality of a module is entirely dependent on the completion of other modules, amortization of that module shall begin when both that module and the other modules upon which it is functionally dependent are ready for their intended use.

#### Internal-Use Computer Software Subsequently Marketed

##### [350-40-35-7](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-7)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:64515612dcb79fd24a6c0f4b5af1c1e25b31fb5b0eadf6450bea2a7fc5ca49cb

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If, after the development of internal-use software is completed, an entity decides to market the software, proceeds received from the license of the computer software, net of direct incremental costs of marketing, such as commissions, software reproduction costs, warranty and service obligations, and installation costs, shall be applied against the carrying amount of that software.

##### [350-40-35-8](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-8)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:7823897b984ea9fe58a4862cbcd960732618313244586b49b937a70f8fc3e992

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Effective as of: not established by retrieval timestamps.


No profit shall be recognized until aggregate net proceeds from licenses and amortization have reduced the carrying amount of the software to zero. Subsequent proceeds shall be recognized as [revenue](https://asc.understandingaccounting.org/glossary/r/#revenue "Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.")in accordance with Topic 606 on revenue from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with [customers](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") or recognized as a gain in accordance with Subtopic 610-20 on derecognition of nonfinancial assets if the contract is not with a customer.

##### [350-40-35-9](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-9)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:32.106Z to 2026-09-10T00:02:32.106Z

Record version: sha256:de65a458e2e85f349f609cba8a7b322cb666ff5e7c8700ebd6a0311df763a9a4

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Effective as of: not established by retrieval timestamps.


If, during the development of internal-use software, an entity decides to market the software to others, the entity shall follow the guidance in Subtopic 985-20. Amounts previously capitalized under this Subtopic shall be evaluated at each balance sheet date in accordance with paragraph [985-20-35-4](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-4). Capitalized software costs shall be amortized in accordance with paragraphs

[985-20-35-1 through 35-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-1)

.

##### [350-40-35-10](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-10)

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A pattern of deciding to market internal-use software during its development creates a rebuttable presumption that any software developed by that entity is intended for sale, lease, or other marketing, and thus is subject to the guidance in Subtopic 985-20.

### Implementation Costs of a Hosting Arrangement That Is a Service Contract

#### Impairment

##### [350-40-35-11](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-11)

Pending content: no

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Impairment shall be recognized and measured in accordance with the provisions of Section 360-10-35 as if the capitalized implementation costs were a long-lived asset. That guidance requires that assets be grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The guidance is applicable, for example, when one of the following events or changes in circumstances occurs related to the [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.") that is a service contract indicating that the carrying amount of the related implementation costs may not be recoverable:

1.  a
    
    The hosting arrangement is not expected to provide substantive service potential.
    
2.  b
    
    A significant change occurs in the extent or manner in which the hosting arrangement is used or is expected to be used.
    
3.  c
    
    A significant change is made or will be made to the hosting arrangement.

##### [350-40-35-12](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-12)

Pending content: no

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Paragraphs

[360-10-35-47 through 35-49](https://asc.understandingaccounting.org/asc/360/10/#360-10-35-47)

require that the asset be accounted for as abandoned when it ceases to be used. Implementation costs related to each module or component of a hosting arrangement that is a service contract shall be evaluated separately as to when it ceases to be used.

#### Amortization

##### [350-40-35-13](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-13)

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Implementation costs capitalized in accordance with the Implementation Costs of a Hosting Arrangement That Is a Service Contract Subsections of this Subtopic shall be amortized over the term of the associated hosting arrangement, considering the guidance in paragraph [350-40-35-17](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-17), on a straight-line basis unless another systematic and rational basis is more representative of the pattern in which the entity expects to benefit from access to the hosted software. This Subsection considers the right to access the hosted software to be equivalent to actual use, which shall not be affected by the extent to which the entity uses, or the expectations about the entity's use of, the hosted software (for example, how many transactions the entity processes or expects to process or how many users access or are expected to access the hosted software).

##### [350-40-35-14](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-14)

Pending content: no

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An entity (customer) shall determine the term of the hosting arrangement that is a service contract as the fixed noncancellable term of the hosting arrangement plus all of the following:

1.  a
    
    Periods covered by an option to extend the hosting arrangement if the entity (customer) is reasonably certain to exercise that option
    
2.  b
    
    Periods covered by an option to terminate the hosting arrangement if the entity (customer) is reasonably certain not to exercise that option
    
3.  c
    
    Periods covered by an option to extend (or not to terminate) the hosting arrangement in which exercise of the option is controlled by the vendor.

##### [350-40-35-15](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-15)

Pending content: no

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An entity (customer) shall periodically reassess the estimated term of the arrangement and shall account for any change in the estimated term as a change in accounting estimate in accordance with Topic 250 on accounting changes and error corrections.

##### [350-40-35-16](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-16)

Pending content: no

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An entity shall consider the effects of all the following when determining the term of the hosting arrangement in accordance with paragraph [350-40-35-14](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-14) and when reassessing the term of the hosting arrangement in accordance with paragraph [350-40-35-15](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-15):

1.  a
    
    Obsolescence
    
2.  b
    
    Technology
    
3.  c
    
    Competition
    
4.  d
    
    Other economic factors
    
5.  e
    
    Rapid changes that may be occurring in the development of hosting arrangements or hosted software
    
6.  f
    
    Significant implementation costs that are expected to have significant economic value for the entity (customer) when the option to extend or terminate the hosting arrangement becomes exercisable.

##### [350-40-35-17](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-17)

Pending content: no

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For each module or component of a hosting arrangement, an entity shall begin amortizing the capitalized implementation costs related to the hosting arrangement that is a service contract when the module or component of the hosting arrangement is ready for its intended use, regardless of whether the overall hosting arrangement will be placed in service in planned stages that may extend beyond a reporting period. For purposes of this Subsection, a hosting arrangement (or a module or component of a hosting arrangement) is ready for its intended use after all substantial testing is completed. If the functionality of a module or component is entirely dependent on the completion of other modules or components, the entity shall begin amortizing the capitalized implementation costs related to that module or component when both that module or component and the other modules or components upon which it is functionally dependent are ready for their intended use.

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## ASC 350-40-45: 45 Other Presentation Matters

[Read section](https://asc.understandingaccounting.org/asc/350/40/#45-other-presentation-matters)

SEC content: no

### Implementation Costs of a Hosting Arrangement That Is a Service Contract

#### Amortization

##### [350-40-45-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-45-1)

Pending content: no

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An entity shall present the amortization of implementation costs described in paragraph [350-40-35-13](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-13) in the same line item in the statement of income as the expense for fees for the associated [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.").

#### Statement of Financial Position

##### [350-40-45-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-45-2)

Pending content: no

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An entity shall present the capitalized implementation costs described in paragraph [350-40-25-18](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-18) in the same line item in the statement of financial position that a prepayment of the fees for the associated hosting arrangement would be presented.

#### Statement of Cash Flows

##### [350-40-45-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-45-3)

Pending content: no

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An entity shall classify the cash flows from capitalized implementation costs described in paragraph [350-40-25-18](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-18) in the same manner as the cash flows for the fees for the associated hosting arrangement.

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## ASC 350-40-50: 50 Disclosure

[Read section](https://asc.understandingaccounting.org/asc/350/40/#50-disclosure)

SEC content: no

##### [350-40-50-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-50-1)

Pending content: yes

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The General Subsection of this Subtopic does not require any incremental disclosures. Disclosure shall be made in accordance with existing authoritative literature including the following:

1.  a
    
    Topic 275
    
2.  b
    
    Subtopic 730-10
    
3.  c
    
    Topic 235
    
4.  d
    
    Subtopic 360-10.
    

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)The disclosure requirements in Subtopic 360-10 on property, plant, and equipment apply to capitalized costs accounted for under this Subtopic, regardless of how those costs are presented in the financial statements. For purposes of applying those disclosure requirements, any disclosures in Subtopic 360-10 related to property, plant, and equipment shall be applied to internal-use software costs and related amortization. Additionally, disclosure shall be made in accordance with existing authoritative literature including the following:

1.  a
    
    Topic 275
    
2.  b
    
    Subtopic 730-10
    
3.  c
    
    Topic 235
    
4.  d
    
    [Subparagraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

### Implementation Costs of a Hosting Arrangement That Is a Service Contract

##### [350-40-50-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-50-2)

Pending content: no

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An entity shall disclose the nature of its [hosting arrangements](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.") that are service contracts.

##### [350-40-50-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-50-3)

Pending content: yes

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The disclosure requirements in the General Subsection of this Section are applicable to the capitalized implementation costs of hosting arrangements that are service contracts. An entity shall make the disclosures in Subtopic 360-10 as if the capitalized implementation costs were a separate major class of depreciable asset.

Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:

[220-40-65-1](https://asc.understandingaccounting.org/asc/220/40/#220-40-65-1)The disclosure requirements in the General Subsection of this Section are applicable to the capitalized implementation costs of hosting arrangements that are service contracts. An entity shall make the disclosures in Subtopic 360-10 as if the capitalized implementation costs were a separate major class of depreciable asset. See paragraphs

[220-40-50-21 through 50-25](https://asc.understandingaccounting.org/asc/220/40/#220-40-50-21)

for additional disclosure requirements.

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## ASC 350-40-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/350/40/#55-implementation-guidance-and-illustrations)

SEC content: no

#### Implementation Guidance

##### [350-40-55-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-1)

Pending content: no

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The following is a list of examples illustrating when computer software is for internal use:

1.  a
    
    A manufacturing entity purchases robots and customizes the software that the robots use to function. The robots are used in a manufacturing process that results in finished goods.
    
2.  b
    
    An entity develops software that helps it improve its cash management, which may allow the entity to earn more revenue.
    
3.  c
    
    An entity purchases or develops software to process payroll, accounts payable, and accounts receivable.
    
4.  d
    
    An entity purchases software related to the installation of an online system used to keep membership data.
    
5.  e
    
    A travel agency purchases a software system to price vacation packages and obtain airfares.
    
6.  f
    
    A bank develops software that allows a customer to withdraw cash, inquire about balances, make loan payments, and execute wire transfers.
    
7.  g
    
    A mortgage loan servicing entity develops or purchases computer software to enhance the speed of services provided to customers.
    
8.  h
    
    A telecommunications entity develops software to run its switches that are necessary for various telephone services such as voice mail and call forwarding.
    
9.  i
    
    An entity is in the process of developing an accounts receivable system. The software specifications meet the entity's internal needs and the entity did not have a marketing plan before or during the development of the software. In addition, the entity has not sold any of its internal-use software in the past. Two years after completion of the project, the entity decided to market the product to recoup some or all of its costs.
    
10.  j
     
     A broker-dealer entity develops a software database and charges for financial information distributed through the database.
     
11.  k
     
     An entity develops software to be used to create components of music videos (for example, the software used to blend and change the faces of models in music videos). The entity then sells the final music videos, which do not contain the software, to another entity.
     
12.  l
     
     An entity purchases software to computerize a manual catalog and then sells the manual catalog to the public.
     
13.  m
     
     A law firm develops an intranet research tool that allows firm members to locate and search the firm's databases for information relevant to their cases. The system provides users with the ability to print cases, search for related topics, and annotate their personal copies of the database.

##### [350-40-55-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-2)

Pending content: no

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The following list provides examples of computer software that is not for internal use:

1.  a
    
    An entity sells software required to operate its products, such as robots, electronic game systems, video cassette recorders, automobiles, voice-mail systems, satellites, and cash registers.
    
2.  b
    
    A pharmaceutical entity buys machines and writes all of the software that allows the machines to function. The pharmaceutical entity then sells the machines, which help control the dispensation of medication to patients and help control inventory, to hospitals.
    
3.  c
    
    A semiconductor entity develops software embedded in a microcomputer chip used in automobile electronic systems.
    
4.  d
    
    An entity purchases software to computerize a manual catalog and then sells the computer version and the related software to the public.
    
5.  e
    
    A software entity develops an operating system for sale and for internal use. Though the specifications of the software meet the entity's internal needs, the entity had a marketing plan before the project was complete. In addition, the entity has a history of selling software that it also uses internally and the plan has a reasonable possibility of being implemented.
    
6.  f
    
    An entity is developing software for a point-of-sale system. The system is for internal use; however, a marketing plan is being developed concurrently with the software development. The plan has a reasonable possibility of being implemented.
    
7.  g
    
    A telecommunications entity purchases computer software to be used in research and development activities.
    
8.  h
    
    An entity incurs costs to develop computer software for another entity under a contract with that other entity.

##### [350-40-55-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-3)

Pending content: yes

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The following list illustrates the various stages and related processes of computer software development:

1.  a
    
    [Preliminary project stage](https://asc.understandingaccounting.org/glossary/p/#preliminary-project-stage "When a computer software project is in the preliminary project stage, entities will likely do the following: Make strategic decisions to allocate resources between alternative projects at a given point in time. For example, should programmers develop a new payroll system or direct their efforts toward correcting existing problems in an operating payroll system? Determine the performance requirements (that is, what it is that they need the software to do) and systems requirements for the computer software project it has proposed to undertake. Invite vendors to perform demonstrations of how their software will fulfill an entity's needs. Explore alternative means of achieving specified performance requirements. For example, should an entity make or buy the software? Should the software run on a mainframe or a client server system? Determine that the technology needed to achieve performance requirements exists. Select a vendor if an entity chooses to obtain software. Select a consultant to assist in the development or installation of the software. (P) December 16, 2027; (N) December 16, 2027350-40-65-4Paragraph superseded by Accounting Standards Update No. 2025-06."):
    
    1.  1
        
        Conceptual formulation of alternatives
        
    2.  2
        
        Evaluation of alternatives
        
    3.  3
        
        Determination of existence of needed technology
        
    4.  4
        
        Final selection of alternatives.
        
2.  b
    
    Application development stage:
    
    1.  1
        
        Design of chosen path, including software configuration and software interfaces
        
    2.  2
        
        Coding
        
    3.  3
        
        Installation to hardware
        
    4.  4
        
        Testing, including parallel processing phase.
        
3.  c
    
    Postimplementation-operation stage:
    
    1.  1
        
        Training
        
    2.  2
        
        Application maintenance.
        

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)[Paragraph superseded by Accounting Standards Update No. 2025-06.](https://asc.understandingaccounting.org/updates/asu-2025-06/)

##### [350-40-55-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-4)

Pending content: yes

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Effective as of: not established by retrieval timestamps.


This Subtopic recognizes that the development of internal-use computer software may not follow the order shown in the preceding list. For example, coding and testing are often performed simultaneously. Regardless, for costs incurred subsequent to completion of the preliminary project stage, the guidance shall be applied based on the nature of the costs incurred, not the timing of their incurrence. For example, while some training may occur in the application development stage, it should be expensed as incurred as required in paragraphs

[350-40-25-2 through 25-6](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-2)

.

Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)This Subtopic recognizes that certain development activities such as coding and testing are often performed simultaneously. Regardless, for costs incurred subsequent to meeting the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

, the guidance shall be applied based on the nature of the costs incurred, not the timing of their incurrence. For example, while some training may occur subsequent to meeting the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

and before the software project is substantially complete and ready for its intended use, it should be expensed as incurred as required in paragraph [350-40-25-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-4).

#### Illustrations

##### [350-40-55-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-5)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:f74849071b5684e6db768ccaedb735af95a2741df3abd6c8d71eb740b233ca68

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)On February 1, 20X3, a professional services company starts internal discussions to transform its information technology by implementing an enterprise resource planning system to support finance, human resources, accounting, and client relationships.

##### [350-40-55-6](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-6)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:f987c03be682c971174e9b362ab51af1cae5e8f2c76dd0ea62e3286620a650da

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)After researching different solutions and performing its due diligence procedures, management executes a contract with a third party on August 1, 20X3, to implement and customize a hybrid solution that offers on-premises software and cloud computing services for the enterprise resource planning system. Within this solution, the third party offers different functionality and features, and the company will have to make customization decisions throughout the development process to select which functionality and features it wants included.

##### [350-40-55-7](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-7)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:5162c5952eb04568bcbf3e1cad1e55bacfdb200e12e6605437835953480e2b12

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)The company assesses whether the internal and external costs to implement and customize the enterprise resource planning system meet the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

, as follows:

1.  a
    
    As part of its assessment under paragraph [350-40-25-12(c)](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12), the company evaluates whether there is significant development uncertainty in accordance with paragraph [350-40-25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A). As of August 1, 20X3, the company determines that:
    
    1.  1
        
        It has identified the significant [performance requirements](https://asc.understandingaccounting.org/glossary/p/#performance-requirements "(P) December 16, 2027; (N) December 16, 2027 350-40-65-4 Performance requirements are what an entity needs the software to do (for example, functions or features).") and does not expect to continue to substantially revise those requirements because the only expected customization is selecting from existing functionality and features.
        
    2.  2
        
        The software being developed does not have technological innovations or novel, unique, or unproven functions or features because the company has selected a developed solution.
        
    
    Therefore, as of August 1, 20X3, the company determines that significant development uncertainty does not exist.
    
2.  b
    
    The company evaluates the requirements in paragraph [350-40-25-12](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12) to determine when to begin capitalizing software costs:
    
    1.  1
        
        The company determines that management authorized and committed to funding the software project on August 1, 20X3, when it executed the contract with the third party.
        
    2.  2
        
        Considering all other relevant facts and circumstances (for example, the company has engaged an established and experienced third party to implement and customize the software), as of August 1, 20X3, the company determines that it is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that the software project will be completed and the software will be used to perform the function intended.

##### [350-40-55-8](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-8)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:92fa5bf0f8cdb53ae326a3c0e962a01a9ec249c5e65054d767366bd9f79f4bf6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)As a result, on August 1, 20X3, the company determines that the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

are met, and it begins capitalizing eligible software costs, including those related to implementation and customization of the on-premises software license and those related to implementation of the cloud computing service features of the hybrid solution.

##### [350-40-55-9](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-9)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:89960eaa1af16e49e7190d576269079067e03d34e7bdce716cda7daec4c86da9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)A company is in the process of internally developing X-Crowd, which is a mobile application that will allow users to see how crowded a restaurant or store is on the basis of a user’s real-time input. An internet connection is required to be able to access the application.

##### [350-40-55-10](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-10)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:6f33a38a3eb7e4a5f9c3fe369cd73665c97cfd0e16bb9d1db6997ce1552ab0bf

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)On February 1, 20X1, management approved funding for internal development of the application. However, the company has not yet identified what functions and features would be included in the application. Through November 30, 20X1, the company continues to develop the functions and features of the application, including getting feedback on preliminary product versions from user groups and modifying the development of those functions and features to incorporate the feedback. On December 1, 20X1, management determines that it has identified the significant performance requirements (the significant functions and features it needs the application to have), and it does not anticipate substantial changes to those requirements. Throughout the development of X-Crowd, management determines that the application does not have technological innovations or novel, unique, or unproven functions or features.

##### [350-40-55-11](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-11)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:0d57833dfacef73273ea75fd76d8f9016db2d64df5d104e30e0f2ff827dea822

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)The company assesses whether the internal and external costs to develop the application meet the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

, as follows:

1.  a
    
    As part of its assessment under paragraph [350-40-25-12(c)](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12), the company evaluates whether there is significant development uncertainty in accordance with paragraph [350-40-25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A). As of February 1, 20X1, the company determines that:
    
    1.  1
        
        It has not yet identified the significant performance requirements.
        
    2.  2
        
        The software being developed does not have technological innovations or novel, unique, or unproven functions or features.
        
    
    Therefore, as of February 1, 20X1, the company determines that significant development uncertainty exists and, in accordance with paragraph [350-40-25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A), the software project does not meet the requirements to begin capitalizing software costs in paragraph [350-40-25-12(c)](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12).
    
2.  b
    
    As of December 1, 20X1, the company determines that:
    
    1.  1
        
        It has identified the significant performance requirements and does not expect to continue to substantially revise those requirements.
        
    2.  2
        
        The software being developed does not have technological innovations or novel, unique, or unproven functions or features.
        
    
    Therefore, as of December 1, 20X1, the company determines that significant development uncertainty has been resolved.
    
3.  c
    
    As of December 1, 20X1, the company evaluates the requirements in paragraph [350-40-25-12](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12) to determine when to begin capitalizing software costs:
    
    1.  1
        
        The company determines that management authorized and committed to funding the software project on February 1, 20X1, when it approved funding for internal development of the application.
        
    2.  2
        
        Considering all other relevant facts and circumstances, as of December 1, 20X1, the company determines that it is probable that the software project will be completed and the software will be used to perform the function intended.

##### [350-40-55-12](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-12)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:fec456a66bd4fe325fa3bdfb6464ebcb27ccd53595f9f2574be7e96902a71eb8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)As a result, on December 1, 20X1, the company determines that the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

are met, and it begins capitalizing eligible software costs.

##### [350-40-55-13](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-13)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:6071d0f12e221b922eeb09b464c8f8d6ca6a8e013965521d17abf695e2a7ad3b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)On January 1, 20X1, a software development company starts discussions to develop software with novel functionality.

##### [350-40-55-14](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-14)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:a18a6983fc11961886a927a4e6c2b94966708f2b8de8b99cb1d5faf520206122

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)On February 1, 20X1, management completes its due diligence procedures, approves a budget to internally develop the software, and allocates an internal development team to start developing the novel software. At the time that the company started discussions and management approved a budget, the software still had novel functionality.

##### [350-40-55-15](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-15)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:e2ae23bad0437039d459ee8a8cc60ed59caa3804f994204b1139514d871056ba

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)On March 1, 20X3, the company resolves the uncertainty related to the novel functionality through coding and testing. Additionally, on March 1, 20X3, the company determines that it does not expect substantial changes to the identified significant performance requirements (the significant functions and features) included in the software. On April 1, 20X3, the company determines that all substantial testing is completed.

##### [350-40-55-16](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-16)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:901f67bf59b38ceea97e5a087c1a42dd54276249b48ac78210383bc6d08775d3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)The company assesses whether the internal and external costs to develop the software meet the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

, as follows:

1.  a
    
    As part of its assessment under paragraph [350-40-25-12(c)](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12), the company evaluates whether there is significant development uncertainty in accordance with paragraph [350-40-25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A). As of February 1, 20X1, the company determines that:
    
    1.  1
        
        It has not yet identified the significant performance requirements.
        
    2.  2
        
        The software being developed has novel functionality and that functionality has not been resolved through coding and testing.
        
    
    Therefore, as of February 1, 20X1, the company determines that significant development uncertainty exists and, in accordance with paragraph [350-40-25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A), the software project does not meet the requirements to begin capitalizing software costs in paragraph [350-40-25-12(c)](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12).
    
2.  b
    
    As of March 1, 20X3, the company determines that:
    
    1.  1
        
        It has identified the significant performance requirements and does not expect to continue to substantially revise those requirements.
        
    2.  2
        
        The uncertainty related to the novel functionality has been resolved through coding and testing.
        
    
    Therefore, as of March 1, 20X3, the company determines that significant development uncertainty has been resolved.
    
3.  c
    
    As of March 1, 20X3, the company evaluates the requirements in paragraph [350-40-25-12](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12) to determine when to begin capitalizing software costs:
    
    1.  1
        
        The company determines that management authorized and committed to funding the software project on February 1, 20X1, when it approved a budget and allocated an internal development team.
        
    2.  2
        
        Considering all other relevant facts and circumstances, as of March 1, 20X3, the company determines that it is probable that the software project will be completed and the software will be used to perform the function intended.

##### [350-40-55-17](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-17)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:dbd1ee88828f1fcc75e36cbc582c36ab633a631ecbf818e86f7798add5849217

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)As a result, on March 1, 20X3, the company determines that the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

are met, and it begins capitalizing eligible software costs. On April 1, 20X3, the company determines that the software project is substantially complete and ready for its intended use because all substantial testing has been completed. Therefore, the company ceases capitalizing eligible software costs on April 1, 20X3, in accordance with paragraph [350-40-25-14](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-14).

##### [350-40-55-18](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-18)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:2e0db9963a20b0ab13a0ea5037f8105b9be772ebc742d3177b460ccf60081a22

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)An animal rescue organization starts discussions on June 15, 20X5, to develop a website that will be used to share information with users of the organization, including hours of operation, contact details, animals available for adoption, and standard adoption procedures.

##### [350-40-55-19](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-19)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:53a7ae467507a8b62c29ba203005a662df152846dca61229320d2a7f37f8bbd3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)After researching different website developers and performing its due diligence procedures, management executes a contract with a third party on August 1, 20X5, to develop a website for the organization. The third party is an established website developer and offers different templates that the organization can use to create its website. In addition to website development fees paid to the third party, the organization incurs costs:

1.  a
    
    To obtain and register an internet domain
    
2.  b
    
    To input content into the website
    
3.  c
    
    To develop initial graphics for the website
    
4.  d
    
    To register the website with internet search engines
    
5.  e
    
    For ongoing website hosting fees.

##### [350-40-55-20](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-20)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:538bd2c8946dd25fb29b513db95ab838bd43e3b51c1513ee69a3769c75956671

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)The organization assesses whether the internal and external costs to develop the website meet the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

, as follows:

1.  a
    
    As part of its assessment under paragraph [350-40-25-12(c)](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12), the organization evaluates whether there is significant development uncertainty in accordance with paragraph [350-40-25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12A). As of August 1, 20X5, the organization determines that:
    
    1.  1
        
        It has identified the significant performance requirements and does not expect to continue to substantially revise those requirements because the website will be created from existing templates that the organization can use to share the information described in paragraph [350-40-55-18](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-18).
        
    2.  2
        
        The website being developed does not have technological innovations or novel, unique, or unproven functions or features because it will be developed from existing templates.
        
    
    Therefore, as of August 1, 20X5, the organization determines that significant development uncertainty does not exist.
    
2.  b
    
    The organization evaluates the requirements in paragraph [350-40-25-12](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12) to determine when to begin capitalizing costs:
    
    1.  1
        
        The organization determines that management authorized and committed to funding the development of the website on August 1, 20X5, when it executed the contract with the third party.
        
    2.  2
        
        Considering all other relevant facts and circumstances (for example, the organization has engaged an established and experienced third party to develop the website), as of August 1, 20X5, the organization determines that it is probable that the project will be completed and the website will be used to perform the function intended.

##### [350-40-55-21](https://asc.understandingaccounting.org/asc/350/40/#350-40-55-21)

Pending content: yes

Source downloaded (UTC): 2026-09-10T00:02:39.961Z to 2026-09-10T00:02:39.961Z

Record version: sha256:70539ea92dd381345e291fb25922739ef8f77333f0404e1da4ff90458e742fb0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Transition date:(P) December 16, 2027; (N) December 16, 2027Transition guidance:

[350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)As a result, on August 1, 20X5, the organization determines that the capitalization requirements in paragraphs

[350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)

are met, and it begins capitalizing eligible costs. In evaluating which costs are eligible for capitalization, the organization determines the following:

1.  a
    
    Fees paid to the third party for services to develop the website are evaluated for capitalization in accordance with paragraph [350-40-30-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-30-1).
    
2.  b
    
    Costs incurred to obtain and register the internet domain are evaluated for capitalization in accordance with paragraph [350-40-25-17J](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17J).
    
3.  c
    
    Costs incurred to input content into the website are expensed as incurred in accordance with paragraph [350-40-25-17G](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17G).
    
4.  d
    
    Costs incurred to develop initial graphics for the website are evaluated for capitalization in accordance with paragraph [350-40-25-17H](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17H).
    
5.  e
    
    Costs incurred to register the website with internet search engines are expensed as incurred in accordance with paragraph [350-40-25-17I](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17I).
    
6.  f
    
    Ongoing website hosting fees are expensed over the period of benefit in accordance with paragraph [350-40-25-17F](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-17F).

Source downloaded (UTC): 2026-09-10T00:02:43.475Z to 2026-09-10T00:02:43.475Z

Record version: sha256:1b64d48da0ce6f79e53d7a752e8e16e2773fa59e27d35f8103f78a4e67df16cf

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 350-40-65: 65 Transition and Open Effective Date Information

[Read section](https://asc.understandingaccounting.org/asc/350/40/#65-transition-and-open-effective-date-information)

SEC content: no

##### [350-40-65-1](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:43.475Z to 2026-09-10T00:02:43.475Z

Record version: sha256:6b8a3fae11132fc4772d3b5291edd813f810ddb2ee38b74635f2b2a235628759

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 10/26/2017 after the end of the transition period stated in Accounting Standards Update No. 2015-05, _Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement_.

##### [350-40-65-2](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:43.475Z to 2026-09-10T00:02:43.475Z

Record version: sha256:132d4b75fdfa08306a2938cd6c111d1d0be86c0d9c99fef0c10b14f5a0a4f9d0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-19, _Technical Corrections and Improvements_.

##### [350-40-65-3](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-3)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:43.475Z to 2026-09-10T00:02:43.475Z

Record version: sha256:4b074ffb073ec11e75837523783bc4b2f8510a725c2d63e4c6725cd948690ecd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraph superseded on 12/14/2022 after the end of the transition period stated in Accounting Standards Update No. 2018-15, _Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract_.

#### Transition Related to Accounting Standards Update No. 2025-06, <em class="ph i">Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software</em>

##### [350-40-65-4](https://asc.understandingaccounting.org/asc/350/40/#350-40-65-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:02:43.475Z to 2026-09-10T00:02:43.475Z

Record version: sha256:effd04a6c0274316ae28c38acda994c408cba1c0f9858c2da95600b78b8fa052

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Accounting Standards Update 2025-06](https://asc.understandingaccounting.org/updates/asu-2025-06/)

2029-6-13

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

2027-12-16

The following represents the transition and effective date information related to Accounting Standards Update No. 2025-06, _Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software_:

**Effective date and early adoption**

1.  a
    
    All entities shall apply the pending content that links to this paragraph for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods.
    
2.  b
    
    Early adoption of the pending content that links to this paragraph is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts the pending content that links to this paragraph in an interim reporting period, it shall adopt the pending content as of the beginning of the annual reporting period that includes that interim reporting period.
    

**Transition methods**

1.  c
    
    An entity shall apply the pending content that links to this paragraph using one of the following transition methods:
    
    1.  1
        
        Prospectively to new software costs incurred for all projects, including costs incurred for in-process projects, during annual reporting periods (and interim reporting periods within those annual reporting periods) beginning after the date that the pending content that links to this paragraph is adopted.
        
    2.  2
        
        On a modified transition approach, as follows:
        
        1.  i
            
            Prospectively to new software costs incurred (for all projects, including costs incurred for in-process projects), excluding those described in (c)(2)(ii), during annual reporting periods (and interim reporting periods within those annual reporting periods) beginning after the date that the pending content that links to this paragraph is adopted.
            
        2.  ii
            
            For an in-process project that, as of the date that the pending content that links to this paragraph is adopted, the entity determines does not meet the capitalization requirements in paragraphs
            
            [350-40-25-12 through 25-12A](https://asc.understandingaccounting.org/asc/350/40/#350-40-25-12)
            
            but had met the capitalization requirements before that date, the entity shall derecognize capitalized costs for that in-process project through a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the annual reporting period in which the pending content that links to this paragraph is adopted.
            
    3.  3
        
        Retrospectively through a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the first period presented.
        

**Transition disclosures**

1.  d
    
    An entity that applies the pending content that links to this paragraph prospectively in accordance with (c)(1) shall provide the transition disclosures required by paragraph [250-10-50-1(a)](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-1) in both the interim reporting period (if applicable) and the annual reporting period of the change.
    
2.  e
    
    An entity that applies the pending content that links to this paragraph using a modified transition approach in accordance with (c)(2) shall provide the transition disclosures required by paragraph [250-10-50-1(a)](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-1) and the cumulative effect of the change on retained earnings (or other components of equity or net assets in the statement of financial position) as of the beginning of the annual reporting period in which the pending content that links to this paragraph is adopted in both the interim reporting period (if applicable) and the annual reporting period of the change.
    
3.  f
    
    An entity that applies the pending content that links to this paragraph retrospectively in accordance with (c)(3) shall provide the transition disclosures required by paragraph [250-10-50-1(a) through (b)(1)](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-1), (b)(2) for any prior periods retrospectively adjusted, and (b)(3) and (c)(2) in both the interim reporting period (if applicable) and the annual reporting period of the change.