{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/985/20/#25-recognition","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"985","topic_title":"Software","subtopic":"985-20","subtopic_title":"Costs of Software to Be Sold, Leased, or Marketed","section":{"number":"25","label":"25 Recognition","anchor":"25-recognition","is_sec":false,"groups":[{"block":null,"heading":"Research and Development Costs of Computer Software","paragraphs":[{"citation":"985-20-25-1","para":"25-1","html":"
All costs incurred to establish the technological feasibility of a computer software product to be sold, leased, or otherwise marketed are research and development costs. Those costs shall be charged to expense when incurred as required by Subtopic 730-10.
","snippet":"All costs incurred to establish the technological feasibility of a computer software product to be sold, leased, or otherwise marketed are research and development costs. Those costs shall be charged to expense when incu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:28a539643b5914c49b8a6c92d9d7eb22807d22d386f8fbc189cdd020a9a3bf0e","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"citation":"985-20-25-2","para":"25-2","html":"
For purposes of this Subtopic, the technological feasibility of a computer software product is established when the entity has completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements. At a minimum, the entity shall have performed the activities in either (a) or (b) as evidence that technological feasibility has been established:
  1. a
    If the process of creating the computer software product includes a detail program design, all of the following:
    1. 1
      The product design and the detail program design have been completed, and the entity has established that the necessary skills, hardware, and software technology are available to the entity to produce the product.
    2. 2
      The completeness of the detail program design and its consistency with the product design have been confirmed by documenting and tracing the detail program design to product specifications.
    3. 3
      The detail program design has been reviewed for high-risk development issues (for example, novel, unique, unproven functions and features or technological innovations), and any uncertainties related to identified high-risk development issues have been resolved through coding and testing.
  2. b
    If the process of creating the computer software product does not include a detail program design with the features identified in (a), both of the following:
    1. 1
      A product design and a working model of the software product have been completed.
    2. 2
      The completeness of the working model and its consistency with the product design have been confirmed by testing.
","snippet":"For purposes of this Subtopic, the technological feasibility of a computer software product is established when the entity has completed all planning, designing, coding, and testing activities that are necessary to estab…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:22acb9242927cb26de04b10eca0d2a2508826989c501cd6022cb1196c263e9c8","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:672f05d23e75de7fd06e6fa7e2182e8d12fd652270f568585c972dbb368bbc54","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"block":null,"heading":"Production Costs of Computer Software","paragraphs":[{"citation":"985-20-25-3","para":"25-3","html":"
Costs of producing product masters incurred subsequent to establishing technological feasibility shall be capitalized. Those costs include coding and testing performed subsequent to establishing technological feasibility.
","snippet":"Costs of producing product masters incurred subsequent to establishing technological feasibility shall be capitalized. Those costs include coding and testing performed subsequent to establishing technological feasibility…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:608bd4408b27f896aa2caf9e1440fd3fe40c242a54cba5171263bde0234f30e3","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"citation":"985-20-25-4","para":"25-4","html":"
Software production costs for computer software that is to be used as an integral part of a product or process shall not be capitalized until both of the following conditions have been met:
  1. a
    Technological feasibility has been established for the software.
  2. b
    All research and development activities for the other components of the product or process have been completed.
","snippet":"Software production costs for computer software that is to be used as an integral part of a product or process shall not be capitalized until both of the following conditions have been met:\n(a) Technological feasibility …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ad3c6cd31e1947cc799724dcda03295d27e571a047fbb05472e62f4a920da820","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"citation":"985-20-25-5","para":"25-5","html":"
An entity may capitalize an allocated amount of indirect costs, such as overhead related to programmers and the facilities they occupy. However, an allocation of general and administrative expenses is not appropriate because those costs relate to the period in which they are incurred.
","snippet":"An entity may capitalize an allocated amount of indirect costs, such as overhead related to programmers and the facilities they occupy. However, an allocation of general and administrative expenses is not appropriate bec…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a2afb2ff8e6cc10180d96a6e2440da1164bd4694d47f8ca368ccb6bb6ce2c69f","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"citation":"985-20-25-6","para":"25-6","html":"
Capitalization of computer software costs shall cease when the product is available for general release to customers. Costs of maintenance and customer support shall be charged to expense when related revenue is recognized or when those costs are incurred, whichever occurs first.
","snippet":"Capitalization of computer software costs shall cease when the product is available for general release to customers. Costs of maintenance and customer support shall be charged to expense when related revenue is recogniz…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6d0a8b615a4fd7332a6c9bd153d78307a1030590019630477c8d4a62f1c481be","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e74cd912f0cf396dc0a667c0c098f7eb632d0e185b3ea7dd2d2bf80eb4bf32a4","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"block":null,"heading":"Purchased Computer Software","paragraphs":[{"citation":"985-20-25-7","para":"25-7","html":"
Some entities purchase software as an alternative to developing it internally. Purchased computer software may be modified or integrated with another product or process.
","snippet":"Some entities purchase software as an alternative to developing it internally. Purchased computer software may be modified or integrated with another product or process.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9dccc00589009ee251ec6dba03b9b8381af591dd794dd66e1b9ec6351c595860","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"citation":"985-20-25-8","para":"25-8","html":"
The cost of purchased computer software to be sold, leased, or otherwise marketed that has no alternative future use shall be accounted for the same as the costs incurred to develop such software internally, as specified in paragraphs
985-20-25-1 through 25-6
.
","snippet":"The cost of purchased computer software to be sold, leased, or otherwise marketed that has no alternative future use shall be accounted for the same as the costs incurred to develop such software internally, as specified…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7a8193fbaf4030fd269a1fc41238b90af81e4b5072d3db2d3435d9a22d3850a5","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"citation":"985-20-25-9","para":"25-9","html":"
An entity shall capitalize the total cost of purchased software that has no alternative future use if the criteria specified in paragraph 985-20-25-2 are met at the time of purchase. Otherwise, the cost will be charged to expense as research and development. For example, if the technological feasibility of a software product as a whole (that is, the product that will be ultimately marketed) has been established at the time software is purchased, the cost of the purchased software shall be capitalized and further accounted for in accordance with the other provisions of this Subtopic. The cost of software purchased to be integrated with another product or process shall be capitalized only if technological feasibility is established for the software component and if all research and development activities for the other components of the product or process are completed at the time of purchase.
","snippet":"An entity shall capitalize the total cost of purchased software that has no alternative future use if the criteria specified in paragraph 985-20-25-2 are met at the time of purchase. Otherwise, the cost will be charged t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0db019fbdad19cea246678f9dc9929d46cbe6b33d3d59e217214f12be3eb584d","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"citation":"985-20-25-10","para":"25-10","html":"
If purchased software has an alternative future use, the cost shall be capitalized when the software is acquired and accounted for in accordance with its use. The alternative future use test also applies to purchased software that will be integrated with a product or process in which the research and development activities for the other components are not complete.
","snippet":"If purchased software has an alternative future use, the cost shall be capitalized when the software is acquired and accounted for in accordance with its use. The alternative future use test also applies to purchased sof…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d5668504d0287caaa913c897cb94c23c276c890211dd066e3d70326d403ab8bc","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8e0b2a9120c91798d0ce2c0a094238aeb240cca673148215eebb70a817836c0c","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"block":null,"heading":"Inventory Costs","paragraphs":[{"citation":"985-20-25-11","para":"25-11","html":"
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.
","snippet":"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.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:12cd7dedbeb1b12f91dca56c42475654b4654a253e5779137e5999c2647ef177","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e36409c43a8ec2dfed5620ac62b34ccce3126fe2262ac447f2d9b9a74d35a943","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},{"block":null,"heading":"Funded Software-Development Arrangements","paragraphs":[{"citation":"985-20-25-12","para":"25-12","html":"
A funded software-development arrangement within the scope of Subtopic 730-20 shall be accounted for in conformity with that Subtopic. If the technological feasibility of the computer software product pursuant to the provisions of this Subtopic has been established before the arrangement has been entered into, Subtopic 730-20 does not apply because the arrangement is not a research and development arrangement. If capitalization of the software-development costs commences pursuant to this Subtopic and the funding party is a collaborator or a partner, any income from the funding party under a funded software-development arrangement shall be credited first to the amount of the development costs capitalized. If the income from the funding party exceeds the amount of development costs capitalized, the excess shall be deferred and credited against future amounts that subsequently qualify for capitalization. Any deferred amount remaining after the project is completed (that is, when the software is available for general release to customers and capitalization has ceased) shall be credited to income. If the counterparty is a customer, the entity shall apply the guidance of Topic 606 on revenue from contracts with customers.
","snippet":"A funded software-development arrangement within the scope of Subtopic 730-20 shall be accounted for in conformity with that Subtopic. If the technological feasibility of the computer software product pursuant to the pro…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:aad0aea43188a44e4a677086f230f1177b749fc2aa1c496f537045465b0cb948","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:031ee5dbff3ad38d2e5c69dcbbee18c1145e92d23eb88e212ecb2b22fe970257","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:dcae0f414b41d2eb5b30a10fbb851f9685c212b9306b0b0275a35d0c3f2cb093","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:dcae0f414b41d2eb5b30a10fbb851f9685c212b9306b0b0275a35d0c3f2cb093","downloaded_from":"2026-09-10T02:28:37.970Z","last_downloaded_at":"2026-09-10T02:28:37.970Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481375","source_sha256":"ce92b947569fa50855887dff24b7d036a6a1a4f520ed083fccbdd8e07ff60194"}}