# ASC 985-20-25: Software — Costs of Software to Be Sold, Leased, or Marketed — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/985/20/#25-recognition) 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): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:dcae0f414b41d2eb5b30a10fbb851f9685c212b9306b0b0275a35d0c3f2cb093 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/985/20/#25-recognition) SEC content: no #### Research and Development Costs of Computer Software ##### [985-20-25-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:28a539643b5914c49b8a6c92d9d7eb22807d22d386f8fbc189cdd020a9a3bf0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:22acb9242927cb26de04b10eca0d2a2508826989c501cd6022cb1196c263e9c8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of this Subtopic, the technological feasibility of a computer software product is established when the entity has completed all planning, designing, [coding](https://asc.understandingaccounting.org/glossary/c/#coding "Generating detailed instructions in a computer language to carry out the requirements described in the detail program design. The coding of a computer software product may begin before, concurrent with, or after the completion of the detail program design."), and [testing](https://asc.understandingaccounting.org/glossary/t/#testing "Performing the steps necessary to determine whether the coded computer software product meets function, feature, and technical performance requirements set forth in the product design.") 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](https://asc.understandingaccounting.org/glossary/d/#detail-program-design "The detail design of a computer software product that takes product function, feature, and technical requirements to their most detailed, logical form and is ready for coding."), all of the following: 1. 1 The [product design](https://asc.understandingaccounting.org/glossary/p/#product-design "A logical representation of all product functions in sufficient detail to serve as product specifications.") 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](https://asc.understandingaccounting.org/glossary/w/#working-model "An operative version of the computer software product that is completed in the same software language as the product to be ultimately marketed, performs all the major functions planned for the product, and is ready for initial customer testing (usually identified as beta testing).") 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. #### Production Costs of Computer Software ##### [985-20-25-3](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:608bd4408b27f896aa2caf9e1440fd3fe40c242a54cba5171263bde0234f30e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [985-20-25-4](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:ad3c6cd31e1947cc799724dcda03295d27e571a047fbb05472e62f4a920da820 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [985-20-25-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:a2afb2ff8e6cc10180d96a6e2440da1164bd4694d47f8ca368ccb6bb6ce2c69f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [985-20-25-6](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:6d0a8b615a4fd7332a6c9bd153d78307a1030590019630477c8d4a62f1c481be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Capitalization of computer software costs shall cease when the product is available for general release to customers. Costs of [maintenance](https://asc.understandingaccounting.org/glossary/m/#maintenance "Activities undertaken after the product is available for general release to customers to correct errors or keep the product updated with current information. Those activities include routine changes and additions.") and [customer support](https://asc.understandingaccounting.org/glossary/c/#customer-support "Services performed by an entity to assist customers in their use of software products. Those services include any installation assistance, training classes, telephone question and answer services, newsletters, on-site visits, and software or data modifications.") shall be charged to expense when related revenue is recognized or when those costs are incurred, whichever occurs first. #### Purchased Computer Software ##### [985-20-25-7](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:9dccc00589009ee251ec6dba03b9b8381af591dd794dd66e1b9ec6351c595860 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some entities purchase software as an alternative to developing it internally. Purchased computer software may be modified or integrated with another product or process. ##### [985-20-25-8](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:7a8193fbaf4030fd269a1fc41238b90af81e4b5072d3db2d3435d9a22d3850a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-1) . ##### [985-20-25-9](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:0db019fbdad19cea246678f9dc9929d46cbe6b33d3d59e217214f12be3eb584d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/985/20/#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. ##### [985-20-25-10](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:d5668504d0287caaa913c897cb94c23c276c890211dd066e3d70326d403ab8bc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. #### Inventory Costs ##### [985-20-25-11](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:12cd7dedbeb1b12f91dca56c42475654b4654a253e5779137e5999c2647ef177 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. #### Funded Software-Development Arrangements ##### [985-20-25-12](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:37.970Z to 2026-09-10T02:28:37.970Z Record version: sha256:aad0aea43188a44e4a677086f230f1177b749fc2aa1c496f537045465b0cb948 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](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."), the entity shall apply the guidance of Topic 606 on [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.") from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with customers.