# ASC 705-985: Cost of Sales and Services — Software Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/705/985/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:56:55.035Z to 2026-09-10T00:57:08.857Z Record version: sha256:67ead8cfd7363e179c40c9646bccc55480002c525c7de397efc55dc766b426d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 705-985: Cost of Sales and Services — Software ### Machine-generated study aids ```json { "summary": "ASC 705-985 is a \"links only\" subtopic that points to the authoritative guidance elsewhere in the Codification on cost of sales and services for computer software. Its content is that amortization of capitalized software development costs for products marketed to others is charged to cost of sales or a similar expense category (per 985-20-45-1), while duplication/packaging costs are inventory costs under 985-330 and costs to keep software current with hardware revisions are addressed in 985-20-55-11 through 55-12.", "key_points": [ "705-985-05-1 states this Subtopic only provides links to guidance on costs of sales and services related to computer software; it contains no independent recognition or measurement rules.", "705-985-25-1 cross-references 985-20-45-1: amortization of capitalized costs to develop software marketed to others is charged to cost of sales or a similar expense category, not to operating expense lines like R&D or SG&A.", "705-985-25-2 directs preparers to Subtopic 985-330 for costs of duplicating software, documentation, and training materials from product masters and for physically packaging the product for distribution (inventory costs).", "705-985-25-3 directs preparers to paragraphs 985-20-55-11 through 55-12 for the treatment of costs incurred to keep software current with hardware revisions." ], "categories": [ "Presentation", "Inventory and PP&E", "Industry-specific", "Subsequent measurement" ], "audience_level": "intermediate", "student_note": "Remember this subtopic exists mainly as a signpost — the real rules live in 985-20 and 985-330. The common mistake is classifying amortization of capitalized software development costs as an operating expense or R&D; for software marketed to others it belongs in cost of sales.", "related_topics": [ "985-20", "985-330", "350-40", "730" ], "key_concepts": [ "cost of sales", "capitalized software development costs", "amortization of software costs", "software marketed to others", "product masters", "duplication and packaging costs", "hardware revisions", "cross-reference subtopic" ] } ``` Source downloaded (UTC): 2026-09-10T00:56:55.035Z to 2026-09-10T00:56:55.035Z Record version: sha256:102700d6b41f890c9e17de7a5d9e2807f76285e989b37cb9858be5cb539565e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 705-985-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/705/985/#00-status) SEC content: no ##### [705-985-00-1](https://asc.understandingaccounting.org/asc/705/985/#705-985-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:55.035Z to 2026-09-10T00:56:55.035Z Record version: sha256:41149da3221825b13408037a3a0e6036b6cd7f78e2eebb0bf6154c97f1ad210f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. No updates have been made to this subtopic. Source downloaded (UTC): 2026-09-10T00:56:57.942Z to 2026-09-10T00:56:57.942Z Record version: sha256:f882eeaf01409d772ac9fc4496f0eed363580289610fdd01dbe02f7dfd82e27f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 705-985-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/705/985/#05-overview-and-background) SEC content: no ##### [705-985-05-1](https://asc.understandingaccounting.org/asc/705/985/#705-985-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:56:57.942Z to 2026-09-10T00:56:57.942Z Record version: sha256:759e723dfdbb86cc07ac26208f99065d4a623279ebec7196916e489ead96605c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic only provides links to guidance on costs of sales and services related to computer software. Source downloaded (UTC): 2026-09-10T00:57:01.817Z to 2026-09-10T00:57:01.817Z Record version: sha256:acce91d1f5b4a88b0257c7893acec99eb1543261990dbb772090ef8beb470b60 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 705-985-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/705/985/#25-recognition) SEC content: no #### Amortization of Capitalized Software Development Costs ##### [705-985-25-1](https://asc.understandingaccounting.org/asc/705/985/#705-985-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:57:01.817Z to 2026-09-10T00:57:01.817Z Record version: sha256:8d5623c0b423db7b01d9876e29ef56a77a90acf4146aa40afdc5b4d7acf12934 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [985-20-45-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-45-1) indicates that the amortization of capitalized costs to develop a software product that is marketed to others would be charged to cost of sales or a similar expense category. #### Cost of Duplicating Software, Documentation, Training Materials, and Packaging ##### [705-985-25-2](https://asc.understandingaccounting.org/asc/705/985/#705-985-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:57:01.817Z to 2026-09-10T00:57:01.817Z Record version: sha256:fb8822bb5ce9ae4279f7a41ee65a8a79e527db6ad2c78f62f69542c41a49c3e1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on costs incurred for duplicating the computer software, documentation, and training materials from product masters and for physically packaging the product for distribution, see Subtopic 985-330. #### Costs to Keep Software Current with Hardware Revisions ##### [705-985-25-3](https://asc.understandingaccounting.org/asc/705/985/#705-985-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:57:01.817Z to 2026-09-10T00:57:01.817Z Record version: sha256:0e702d1616d601fc6f50acf37b2fec7d1ec9b14718b3fcdca6143cae27bfe747 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on costs to keep certain software current with hardware revisions, see paragraphs [985-20-55-11 through 55-12](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-11) . Source downloaded (UTC): 2026-09-10T00:57:05.784Z to 2026-09-10T00:57:05.784Z Record version: sha256:77acc9a9235a77872415a2ab5fcc892884915b113832379bf4c8a63e76e5bc75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 705-985-S25: SEC 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/705/985/#sec-25-recognition) SEC content: yes #### Film and Software Costs Associated with Developing Entertainment and Educational Software Products ##### [705-985-S25-1](https://asc.understandingaccounting.org/asc/705/985/#705-985-S25-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:57:05.784Z to 2026-09-10T00:57:05.784Z Record version: sha256:28ad5175764f4bc2371b844cc8cdf50a3c5a32a41922b5e58d9e57dc706c984c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [985-705-S99-1](https://asc.understandingaccounting.org/asc/705/985/#705-985-S99-1), SEC Observer Comment: Accounting for the Film and Software Costs Associated with Developing Entertainment and Educational Software Products, for SEC Staff views on the accounting for costs related to the development of entertainment and educational software products. Source downloaded (UTC): 2026-09-10T00:57:08.857Z to 2026-09-10T00:57:08.857Z Record version: sha256:c766b150b6bbd33d87135af11bde3b9830e25ca6594cd6dea179bee775e91883 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 705-985-S99: SEC 99 SEC Materials [Read section](https://asc.understandingaccounting.org/asc/705/985/#sec-99-sec-materials) SEC content: yes #### SEC Staff Guidance ##### [705-985-S99-1](https://asc.understandingaccounting.org/asc/705/985/#705-985-S99-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:57:08.857Z to 2026-09-10T00:57:08.857Z Record version: sha256:113c30b069145e5cc83d8095b5dd4a4f862d94f4cb004bbbd21fa5f5133074c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is the text of SEC Observer Comment: Accounting for the Film and Software Costs Associated with Developing Entertainment and Educational Software Products. - The SEC staff has become aware of diversity in the application of generally accepted accounting principles to exploitation, film, and other software development costs associated with EE products. - The SEC staff has learned that certain registrants are recording all costs incurred in the development of EE products pursuant to the provisions of Topics 340, 720, and 985. - Other registrants are separating exploitation and film costs from other software development costs and accounting for the other software development costs using Topic 985 and capitalizing film and exploitation costs as film cost inventory as described in Topic 926. - Still other registrants, principally film production companies, are capitalizing all costs relating to the development of EE products as film cost inventory. - The SEC staff views stated here are not intended to apply to costs incurred to produce computer-generated special effects and images used in products that are exhibited in theaters or licensed to television stations because those costs are addressed by Topic 926. - Topic 985 establishes standards of financial accounting and reporting for the costs of all computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process, whether internally developed and produced or purchased. - The SEC staff believes that EE products that are sold, leased, or otherwise marketed are subject to the accounting requirements of Topic 985. - The SEC staff does not believe that other standards of financial accounting and reporting or that industry practice are acceptable alternatives to those requirements. - The SEC staff also believes that film costs incurred in the development of an EE product should be accounted for under the provisions of Topic 985, not the provisions of Topic 926. - In addition, exploitation costs should be expensed as incurred unless those costs include advertising costs that qualify for capitalization in accordance with the provisions of Topics 340 and 720.