The following table identifies the changes made to this Subtopic.
This Subtopic provides guidance on accounting for costs incurred to develop a website, including whether to capitalize or expense the following types of costs:
- a
Costs incurred in the planning stage
- b
Costs incurred in the website application and infrastructure development stage
- c
Costs incurred to develop graphics
- d
Costs incurred to develop content
- e
Costs incurred in the operating stage.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
350-10-15, with specific transaction qualifications noted below.
The guidance in this Subtopic applies to the following transactions and activities:
- a
Costs incurred to develop a website.
The guidance in this Subtopic does not apply to the following transactions and activities:
- a
The cost of hardware
- b
Acquisitions of servers and related hardware infrastructure.
The guidance in this Section refers to various website development stages. See Section
350-50-55 for details regarding the types of costs and activities incurred during those stages.
Regardless of whether the website planning activities specifically relate to software, all costs incurred in the planning stage shall be expensed as incurred.
The discussion of website application and infrastructure development assumes that any software is developed for the entity's internal needs and no plan exists or is being developed to market the software externally.
All costs relating to software used to operate a website shall be accounted for under Subtopic 350-40 unless a plan exists or is being developed to market the software externally. Software for which a plan exists or is being developed to market the software externally is subject to Subtopic 985-20, and costs associated with the development of that software shall be expensed until technological feasibility is established. See paragraph 985-20-25-2. 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.
Costs incurred to purchase software tools, or costs incurred during the application development stage for internally developed tools, shall be capitalized unless they are used in research and development and meet either of the following conditions: - a
They do not have any alternative future uses.
- b
They are internally developed and represent a pilot project or are being used in a specific research and development project (see paragraph 350-40-15-7).
Costs to obtain and register an internet domain shall be capitalized under Section 350-30-25. Graphics are a component of software. The costs of developing initial graphics shall be accounted for under Subtopic 350-40 for internal-use software, and Subtopic 985-20 for software marketed externally. Modifications to graphics after a website is launched shall be evaluated to determine whether the modifications represent maintenance or enhancements of the website.
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.
Software used to integrate a database with a website shall be capitalized under paragraphs . Data conversion costs shall be expensed as incurred (see paragraph 350-40-25-5). Costs of operating a website shall not be accounted for differently from the costs of other operations; that is, those costs shall be expensed as incurred.
Costs incurred in the operation stage that involve providing additional functions or features to the website shall be accounted for as, in effect, new software. That is, costs of upgrades and enhancements that add functionality shall be expensed or capitalized based on the general model of paragraph 350-40-25-7 (which requires certain costs relating to upgrades and enhancements to be capitalized if it is probable that they will result in added functionality) or, for software that is marketed, paragraphs (which apply a software capitalization model to product enhancements, which include improvements that extend the life or significantly improve the marketability of a product). The determination of whether a change to website software results in an upgrade or enhancement (if internal-use software), or a product enhancement (if externally marketed software), is a matter of judgment based on the specific facts and circumstances. Paragraph 350-40-25-10 states that 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. Costs to register the website with internet search engines represent advertising costs and shall be expensed as incurred under paragraph 720-35-25-1. The following guidance describes or provides examples of various activities that take place at different stages of website development. See Section
350-50-25 for the relevant accounting guidance.
Planning stage activities include the following: - a
Develop a business, project plan, or both. This may include identification of specific goals for the website (for example, to provide information, supplant manual processes, conduct e-commerce, and so forth), a competitive analysis, identification of the target audience, creation of time and cost budgets, and estimates of the risks and benefits.
- b
Determine the functionalities (for example, order placement, order and shipment tracking, search engine, email, chat rooms, and so forth) of the website.
- c
Identify necessary hardware (for example, the server) and web applications. Web applications are the software needed for the website's functionalities. Examples of web applications are search engines, interfaces with inventory or other back-end systems, as well as systems for registration and authentication of users, commerce, content management, usage analysis, and so forth.
- d
Determine that the technology necessary to achieve the desired functionalities exists. Factors might include, for example, target audience numbers, user traffic patterns, response time expectations, and security requirements.
- e
Explore alternatives for achieving functionalities (for example, internal versus external resources, custom-developed versus licensed software, company-owned versus third-party-hosted applications and servers).
- f
Conceptually formulate and/or identify graphics and content (see paragraphs ). - g
Invite vendors to demonstrate how their web applications, hardware, or service will help achieve the website's functionalities.
- h
Select external vendors or consultants.
- i
Identify internal resources for work on the website design and development.
- j
Identify software tools and packages required for development purposes.
- k
Address legal considerations such as privacy, copyright, trademark, and compliance.
The website application and infrastructure development stage involves acquiring or developing hardware and software to operate the website. The activities in this stage include the following:
- a
Acquire or develop the software tools required for the development work (for example, HTML editor, software to convert existing data to HTML form, graphics software, multimedia software, and so forth).
- b
Obtain and register an internet domain name.
- c
Acquire or develop software necessary for general website operations, including server operating system software, internet server software, web browser software, and internet protocol software.
- d
Develop or acquire and customize code for web applications (for example, catalog software, search engines, order processing systems, sales tax calculation software, payment systems, shipment tracking applications or interfaces, email software, and related security features).
- e
Develop or acquire and customize database software and software to integrate distributed applications (for example, corporate databases and accounting systems) into web applications.
- f
Develop HTML web pages or develop templates and write code to automatically create HTML pages.
- g
Purchase the web and application server(s), internet connection (bandwidth), routers, staging servers (where preliminary changes to the website are made in a test environment), and production servers (accessible to customers using the website). Alternatively, these services may be provided by a third party via a hosting arrangement.
- h
Install developed applications on the web server(s).
- i
Create initial hypertext links to other websites or to destinations within the website. Depending on the site, links may be extensive or minimal.
- j
Test the website applications (for example, stress testing).
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.
Graphics include the design or layout of each page (that is, the graphical user interface), color, images, and the overall look and feel and usability of the website. Creation of graphics may involve coding of software, either directly or through the use of graphic software tools. The amount of coding depends on the complexity of the graphics.
Content refers to information included on the website, which may be textual or graphical in nature (although the specific graphics described in paragraph 350-50-55-4 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. Content may be created or acquired to populate databases or web pages. Content may be acquired from unrelated parties or may be internally developed.
Content is text or graphical information (exclusive of graphics described in paragraphs ) on the website which may include information on the entity, products offered, information sources that the user subscribes to, and so forth. Content may originate from databases that must be converted to HTML pages or databases that are linked to HTML pages through integration software. Content also may be coded directly into web pages. Costs incurred during the operating stage include training, administration, maintenance, and other costs to operate an existing website. Activities in the operating stage include the following:
- a
Train employees involved in support of the website.
- b
Register the website with internet search engines.
- c
Perform user administration activities.
- d
Update site graphics (for updates of graphics related to major enhancements, see [h]).
- e
Perform regular backups.
- f
Create new links.
- g
Verify that links are functioning properly and update existing links (that is, link management or maintenance).
- h
Add additional functionalities or features.
- i
Perform routine security reviews of the website and, if applicable, of the third-party host.
- j
Perform usage analysis.