# ASC 985-20: Software — Costs of Software to Be Sold, Leased, or Marketed Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/985/20/) 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): 2026-09-10T02:28:26.033Z to 2026-09-10T02:28:54.478Z Record version: sha256:3003e741cb4047c2d5dbc9e1ad5bb76e1055e5460fccfd4f28fe21801448d99e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20: Software — Costs of Software to Be Sold, Leased, or Marketed ### Machine-generated study aids ```json { "summary": "ASC 985-20 governs the accounting for costs of computer software to be sold, leased, or otherwise marketed, whether internally developed or purchased. All costs incurred to establish technological feasibility are research and development expensed as incurred (985-20-25-1); costs of producing product masters after technological feasibility is established are capitalized (985-20-25-3) and capitalization ceases when the product is available for general release (985-20-25-6). Capitalized amounts are amortized product-by-product at the greater of the revenue-ratio or straight-line amount (985-20-35-1) and are written down to net realizable value at each balance sheet date (985-20-35-4).", "key_points": [ "Technological feasibility is the dividing line: all costs before it are R&D expensed under Subtopic 730-10, and it is established only when the entity completes either the detail program design criteria in 985-20-25-2(a) or a completed, tested working model under 985-20-25-2(b); a working model must be operative, in the marketed language, complete with all major planned functions, and ready for initial customer testing (985-20-55-9).", "For software that is an integral part of a product or process, capitalization cannot begin until technological feasibility is established AND all R&D for the other components is complete (985-20-25-4); allocated indirect costs such as programmer overhead may be capitalized, but general and administrative expenses may not (985-20-25-5).", "Capitalization stops when the product is available for general release, and maintenance and customer support costs are expensed when the related revenue is recognized or when incurred, whichever is first (985-20-25-6).", "Purchased software with no alternative future use is capitalized only if the 985-20-25-2 criteria are met at the time of purchase; otherwise it is expensed as R&D, while purchased software with an alternative future use is capitalized on acquisition (985-20-25-8 through 25-10).", "Annual amortization begins when the product is available for general release and equals the greater of the current-to-total-anticipated gross revenue ratio or straight-line over remaining estimated economic life including the current period (985-20-35-1 through 35-3).", "At each balance sheet date unamortized capitalized costs are compared to net realizable value (estimated future gross revenues less estimated future costs of completing, disposing, maintaining, and supporting), the excess is written off, and the write-down is never restored (985-20-35-4).", "Amortization is charged to cost of sales, capitalized costs are presented as an other asset (an amortizable intangible), and disclosure must include unamortized software costs on each balance sheet and amortization plus write-downs charged to expense (985-20-45-1 through 45-2; 985-20-50-1); Topic 350's recognition rules do not apply but its presentation and disclosure rules do (985-20-45-3)." ], "categories": [ "Recognition", "Subsequent measurement", "Impairment", "Intangibles and goodwill" ], "audience_level": "intermediate", "student_note": "Exam questions almost always turn on identifying the exact moment technological feasibility is reached — everything before is R&D expense, everything after (until general release) is capitalized. Common misunderstandings: thinking Topic 350's intangible impairment model applies (it does not; use the NRV test, and write-downs can never be reversed), assuming amortization is simply straight-line (it is the greater of straight-line or the revenue ratio), and confusing this Subtopic with 350-40 internal-use software.", "related_topics": [ "350-40", "730-10", "730-20", "985-330", "340-40", "275" ], "key_concepts": [ "technological feasibility", "detail program design", "working model", "product master", "net realizable value test", "product enhancement", "hosting arrangement", "research and development costs" ] } ``` Source downloaded (UTC): 2026-09-10T02:28:26.033Z to 2026-09-10T02:28:26.033Z Record version: sha256:5e1efdd06cc0828fc13851b001c7965af9112afdba70744668d5d17d9239a68b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/985/20/#00-status) SEC content: no ##### [985-20-00-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:26.033Z to 2026-09-10T02:28:26.033Z Record version: sha256:cc8616b18a52a82b20691318fca99517b546ea24b4826c9fac1706d215b3dc67 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
AcquirerAmendedAccounting Standards Update No. 2025-0305/12/2025
Acquisition by a Not-for-Profit EntityAddedAccounting Standards Update No. 2010-0701/28/2010
BusinessAmendedAccounting Standards Update No. 2017-0101/05/2017
ContractAddedAccounting Standards Update No. 2014-0905/28/2014
Corporate Joint VentureAddedAccounting Standards Update No. 2023-0508/23/2023
CustomerAddedAccounting Standards Update No. 2014-0905/28/2014
Hosting ArrangementAmendedAccounting Standards Update No. 2018-1508/29/2018
Hosting ArrangementAddedAccounting Standards Update No. 2014-0905/28/2014
Joint VentureAddedAccounting Standards Update No. 2023-0508/23/2023
Not-for-Profit EntityAddedAccounting Standards Update No. 2010-0701/28/2010
RevenueAddedAccounting Standards Update No. 2014-0905/28/2014
Variable Interest EntitySupersededAccounting Standards Update No. 2025-0305/12/2025
985-20-15-2AmendedAccounting Standards Update No. 2010-0701/28/2010
985-20-15-3AmendedAccounting Standards Update No. 2023-0508/23/2023
985-20-15-3AmendedAccounting Standards Update No. 2014-0905/28/2014
985-20-15-3AmendedAccounting Standards Update No. 2010-0701/28/2010
985-20-15-5 through 15-7
AddedAccounting Standards Update No. 2014-0905/28/2014
985-20-25-9AmendedAccounting Standards Update No. 2012-0410/01/2012
985-20-25-12AddedAccounting Standards Update No. 2014-0905/28/2014
985-20-55-2AmendedAccounting Standards Update No. 2014-0905/28/2014
985-20-60-1AmendedAccounting Standards Update No. 2017-0401/26/2017
985-20-60-3AmendedAccounting Standards Update No. 2014-0905/28/2014
Source downloaded (UTC): 2026-09-10T02:28:29.818Z to 2026-09-10T02:28:29.818Z Record version: sha256:c52cf65cee6387b32d02b525349ea87f5983def723c16a2fab71d90d7d79f21e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/985/20/#05-overview-and-background) SEC content: no ##### [985-20-05-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:29.818Z to 2026-09-10T02:28:29.818Z Record version: sha256:2ac05570c11fecfb6056709dba0efb4eaa35d3db684b22b3d4140b97e0bc9186 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic specifies standards of financial accounting and reporting for the costs of 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. ##### [985-20-05-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:29.818Z to 2026-09-10T02:28:29.818Z Record version: sha256:07c883bade447d9bcbfd9c8104d7fe4c00ae29231fc687921103d2f4cdb65c18 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic identifies the costs incurred in the process of creating a software product that are research and development costs and those that are production costs to be capitalized, and it specifies amortization, disclosure, and other requirements. Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:f87a5a3cd6e4e78875b41782cd0e6a1c8e0dc104eedfe4c5e919a2f220683c01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/985/20/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [985-20-15-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:dcb2470e050b04fa786e006a4eaa7ded3bb32ca4abdb124e2a55ec183c17edf2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 985-10-15, with specific transaction qualifications and exceptions noted below. #### Transactions ##### [985-20-15-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:d061e577cbc710544b1aca7a61a69ac94cdd7f26e0782f94001497e23e9e9011 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic applies to the costs, including costs incurred after the date of a business combination or a combination accounted for by a [not-for-profit entity](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans."), of 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. ##### [985-20-15-3](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:de0352774b53f391df0c1e4335ccf22353a3b7a3022b21aca477195b1e9ced86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic does not apply to the following transactions and activities: 1. a Software developed or obtained for internal use (see Subtopic 350-40). 2. b Research and development assets acquired in a business combination, acquired in an [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities."), or recognized by a [joint venture](https://asc.understandingaccounting.org/glossary/j/#joint-venture "An entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a joint venture frequently is to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a joint venture. The ownership of a joint venture seldom changes, and its equity interests usually are not traded publicly. A minority public ownership, however, does not preclude an entity from being a joint venture. As distinguished from a corporate joint venture, a joint venture is not limited to corporate entities.") upon formation. If tangible and intangible assets acquired in those combinations are used in research and development activities, they are recognized and measured at fair value in accordance with Subtopic 805-20. 3. c Arrangements to deliver software or a software system, either alone or together with other products or services, requiring significant production, modification, or customization of software (see the guidance on costs to fulfill a contract in Subtopic 340-40). #### Other Considerations ##### [985-20-15-4](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:9669f8f1c337ad3dfcb9e6cbf82a4046f2692d1f2d256c7b6b2979660b7de542 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As used in this Subtopic, the terms computer software product, software product, and product encompass a computer software program, a group of programs, and a [product enhancement](https://asc.understandingaccounting.org/glossary/p/#product-enhancement "Improvements to an existing product that are intended to extend the life or improve significantly the marketability of the original product. Enhancements normally require a product design and may require a redesign of all or part of the existing product."). #### Software Subject to a Hosting Arrangement ##### [985-20-15-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-5) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:a53fcc663adf9c848a3bf1c1cd48c94265e7167bba2e321f491d0b6b4e501d7f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The software subject to 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.") is within the scope of this Subtopic only 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. ##### [985-20-15-6](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-6) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:a1f454206e7f0179fdb6015936a871252aec7268667c13bbc39998ac9f467dab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of criterion (a) in paragraph [985-20-15-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-5), the term _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. ##### [985-20-15-7](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-7) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:51e29e71b548124963a9163fd8873be03f5881a5a00eb6afbfee4626fe8f3614 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the software subject to a hosting arrangement never meets the criteria in paragraph [985-20-15-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-5), then the software is utilized in providing services and is not within the scope of this Subtopic and, therefore, the development costs of the software should be accounted for in accordance with Subtopic 350-40 on internal-use software (see also paragraph [985-20-55-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-2)). 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. Source downloaded (UTC): 2026-09-10T02:28:40.274Z to 2026-09-10T02:28:40.274Z Record version: sha256:6ac3f4fade182b3e601f13d783d1d7c8e23bbba93ab46a7648b45aa4b9f4d282 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/985/20/#35-subsequent-measurement) SEC content: no #### Amortization of Capitalized Software Costs ##### [985-20-35-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:40.274Z to 2026-09-10T02:28:40.274Z Record version: sha256:0cd7f3735058ed8301a69e3f80d9827e54eeb59297b0fdfa84e744f7d2935bf9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Capitalized software costs shall be amortized on a product-by-product basis. The annual amortization shall be the greater of the amounts computed using the following: 1. a The ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product 2. b The straight-line method over the remaining estimated economic life of the product including the period being reported on. ##### [985-20-35-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:40.274Z to 2026-09-10T02:28:40.274Z Record version: sha256:81e58179773217f2dd39092659f6c0755fab4713db6d50c658e6675e347f7920 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because a net realizable value test, which considers future revenues and costs, must be applied to capitalized costs (see paragraph [985-20-35-4](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-4)), amortization shall be based on estimated future revenues. In recognition of the uncertainties involved in estimating revenue, amortization shall not be less than straight-line amortization over the product's remaining estimated economic life. ##### [985-20-35-3](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:40.274Z to 2026-09-10T02:28:40.274Z Record version: sha256:724eeb3160612d961faf830a0034c87914614b2f0fd00b657ce29e8bd417c88b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Amortization shall start when the product is available for general release to customers. #### Net Realizable Value of Capitalized Software Costs ##### [985-20-35-4](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:40.274Z to 2026-09-10T02:28:40.274Z Record version: sha256:9b6fae47f9fade3edf881f350c609549dbb41a9b7454da5e79a3428b4df713e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At each balance sheet date, the unamortized capitalized costs of a computer software product shall be compared to the net realizable value of that product. The amount by which the unamortized capitalized costs of a computer software product exceed the net realizable value of that asset shall be written off. The net realizable value is the estimated future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing [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.") required to satisfy the entity's responsibility set forth at the time of sale. The reduced amount of capitalized computer software costs that have been written down to net realizable value at the close of an annual fiscal period shall be considered to be the cost for subsequent accounting purposes, and the amount of the write-down shall not be subsequently restored. Source downloaded (UTC): 2026-09-10T02:28:42.127Z to 2026-09-10T02:28:42.127Z Record version: sha256:b1d0273ff6d708f1acdd9915280c62bde5fc3d89c31649b3922ebf567b1ba21b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/985/20/#45-other-presentation-matters) SEC content: no ##### [985-20-45-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:42.127Z to 2026-09-10T02:28:42.127Z Record version: sha256:c4751e1ef4fc289c90490d88ceb8b8e304d5b68200d268a032ec5be9f396a956 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because amortization expense of capitalized software costs relates to a software product that is marketed to others, the expense shall be charged to cost of sales or a similar expense category. ##### [985-20-45-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-45-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:42.127Z to 2026-09-10T02:28:42.127Z Record version: sha256:5cbff37dc828aad592aa15e1627ba286b57cf55ff0dfb161cb630afd403aef7b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In an entity's balance sheet, capitalized software costs having a life of more than one year or one operating cycle shall be presented as an other asset because the costs are an amortizable intangible asset. ##### [985-20-45-3](https://asc.understandingaccounting.org/asc/985/20/#985-20-45-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:42.127Z to 2026-09-10T02:28:42.127Z Record version: sha256:2af6929892cfc68a9ebb6aab3ab7aeca5fc7f6698e25f43bec9672fc9ec1fa23 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The accounting requirements of Topic 350 do not apply to capitalized software costs. However, the presentation and disclosure requirements of that Topic do apply to capitalized software costs. Source downloaded (UTC): 2026-09-10T02:28:44.658Z to 2026-09-10T02:28:44.658Z Record version: sha256:e329d29cf7535c455aa1456896aa9344db4c8ea8dffaf8a25e12d543f774fa99 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/985/20/#50-disclosure) SEC content: no ##### [985-20-50-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:44.658Z to 2026-09-10T02:28:44.658Z Record version: sha256:634db4022d4f653747a41d6a53669f0d2bf0f7332dbc778591ba8241bd85b3b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Both of the following shall be disclosed in the financial statements: 1. a Unamortized computer software costs included in each balance sheet presented. 2. b The total amount charged to expense in each income statement presented for both of the following: 1. 1 Amortization of capitalized computer software costs 2. 2 Amounts written down to net realizable value. The amortization and write-down amounts may be combined with only the total of the two expenses being disclosed. ##### [985-20-50-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-50-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:44.658Z to 2026-09-10T02:28:44.658Z Record version: sha256:de186cbfc11437d09664f22c4f4dde185ce8eb43596cb481580b94c5cff5b2d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [350-30-15-3](https://asc.understandingaccounting.org/asc/350/30/#350-30-15-3) requires that an entity apply the disclosure requirements of paragraphs [350-30-50-1 through 50-3](https://asc.understandingaccounting.org/asc/350/30/#350-30-50-1) to capitalized software costs. Paragraph [730-10-50-1](https://asc.understandingaccounting.org/asc/730/10/#730-10-50-1) requires that disclosure be made in the financial statements of the total research and development costs charged to expense in each period for which an income statement is presented and states that such disclosure shall include research and development costs incurred for a computer software product to be sold, leased, or otherwise marketed. Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:9716779c2b10e55b1cb452c3c24f5df2bdc6bb55c69ac82142d83eb1149715be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/985/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [985-20-55-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:308d940c449199a8e42f342066ca11d4933735107d17c07a2e56e8b39a4f832e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A software product is most easily defined by describing its necessary qualities. As a product, it is complete and has exchange value. As software, it is a set of programs that interact with each other. A program is further defined as a series of instructions or statements that cause a computer to do work. ##### [985-20-55-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:b8e41c1fd65523ca10b773a517df9385024cadba93c36e096ab164f3506c1a33 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the entity never sells, leases, or licenses the software (that is, the software meets the criteria in paragraph [985-20-15-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-5)), then the software is used in providing services and the development costs of the software should be accounted for in accordance with Subtopic 350-40. However, if during such software's development or modification (accounted for in accordance with Subtopic 350-40), the entity develops a substantive plan to sell, lease, or otherwise market the software externally, the development costs of the software should be accounted for in accordance with this Subtopic (985-20). Paragraph [350-40-35-7](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-7) provides guidance if, after the development of internal-use software is completed, an entity decides to market the software. ##### [985-20-55-3](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:5a93f74d3e65578fd40bbc310d6de0ddbe705e6af99d1e3b10b2e728b8b5a2d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The costs of software that is marketed as part of a product or process are included in the scope of this Subtopic. Software is sometimes embedded in a product and sold as part of the product as a whole. Examples are calculators and robots. This type of software is sometimes known as firmware. Also, some services provided to customers would not be possible without software. Time-sharing and service bureaus are two straightforward examples. ##### [985-20-55-4](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:afa102409104c92aea104f520e470476d6e8df419ff51a5e5933658fb8202040 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) specifies the minimum activities an entity should have performed as evidence that technological feasibility has been established, by either inclusion of 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.") or completion of 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)."). However, an entity may need to defer capitalization until after meeting the working model criteria in paragraph [985-20-25-2(b)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2), even though technological feasibility had previously been established by meeting the detail program design criteria in paragraph [985-20-25-2(a)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2). ##### [985-20-55-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:3e8aac8f6ad1a27a4fd831bc5b064168c8678a0b0e8037e57f8d201facd01baf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [985-20-25-2(a)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) specifies three criteria relating to the detail program design to be satisfied before capitalization begins. Entities whose software product process fits the description in that paragraph should look to that paragraph for the applicable technological feasibility criteria. However, if the three criteria in that paragraph are not met until a working model is completed, this Subtopic requires capitalization to begin upon completion of the working model and satisfaction of the other criteria in paragraph [985-20-25-2(b)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2). ##### [985-20-55-6](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:969c07e8b96db0148d573f6195bf2f5ebcce2a1356fc713b49888f961ece39e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Management shall not require more stringent criteria than specified in paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) to begin capitalizing software production costs. One of the purposes of this Subtopic is to identify an objective point in the software product process at which research and development activities end and production activities begin. If management were to modify the Subtopic's criteria or impose additional criteria of its own, this objective would be thwarted. ##### [985-20-55-7](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:37a7143e20b242bf405707090e24958ff5c1f5c02d2d526f5a224dc66695992e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When a product comprises various modules that are not separately saleable, technological feasibility is established for the product as a whole, not on a module-by-module basis. The detail program design or the working model of the entire product (all modules linked together) must be completed before capitalization. ##### [985-20-55-8](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:c1665856237ab01e780131dfb60f933c43c45d13d07b166e77d5abdb2842115e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some entities in the software industry use the term _working model_ to mean a prototype in which critical parts of the product have been coded or written in pseudocode. This definition of working model does not meet the criteria in paragraph [985-20-25-2(b)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2). This Subtopic defines a working model as having several key characteristics not found in that description of a prototype. ##### [985-20-55-9](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:c8f43a117105b9dd50f8662735eeecf4b4813836e348b11bcdaeaccba56c1d20 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To meet this Subtopic's criteria, the working model must meet all of the following conditions: 1. a It must be operative. 2. b It must be in the same language as the product that will be marketed. 3. c It must be complete with all the major functions that were planned for the product. 4. d It must be ready for initial [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.") [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."). ##### [985-20-55-10](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:61a7887673905e8e0716bbb5f553a3ade8efdeca867d34a3f623cccf6cc51983 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A high-risk development issue may arise after an entity has established technological feasibility by meeting the criteria in paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2). The previously capitalized costs and the costs to resolve the high-risk development issue should be accounted for as a change in accounting estimate in accordance with paragraph [250-10-45-17](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-17). That paragraph states that changes in accounting estimates result from new information. The discovery of a high-risk development issue after the entity's personnel thought technological feasibility was established meets this definition. Any previously capitalized costs for that product, as well as any additional costs incurred to establish technological feasibility, should be charged to expense as research and development until the criteria in paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) are met. ##### [985-20-55-11](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:fe92a539fa17e1382ea8c30f277866b606261048fc213033edab6466aae34d97 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When selling systems software, an entity may promise to keep the software current with revisions in the hardware, and incur costs in connection with this service. ##### [985-20-55-12](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:68336db1c3b7da9ad537d03459bbcd53acb7bedc323eb49251be2c8782a7cc93 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This activity appears to meet the definition 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.") because it keeps the product updated with current information. The cost of maintenance is charged to expense when related revenue is recognized or when those costs are incurred, whichever occurs first. The distinctions among maintenance, [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."), and product enhancements are sometimes very fine lines; in each case, the particular circumstances and intentions of the entity should be evaluated in light of the definitions in this Subtopic for each activity. ##### [985-20-55-13](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:047459121bfd17db3f90ce282b8ca21b2ae6928c37c47b6225f1c52aad6fcdd8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may purchase software that will be integrated into another software or hardware product. Assuming that purchased computer software has no alternative future use, its costs can be capitalized only if the technological feasibility of the product to be ultimately marketed has been established at the time of purchase. Such factors as the timing of receipt or the status of hardware and internal software development may be crucial in determining whether technological feasibility is established at the time of purchase. ##### [985-20-55-14](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:dde39d878391e9ea6a8d70588ace61d8809a012fc665ada92e19a158e52941e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may purchase software before technological feasibility has been established. For example, an entity purchases software for $100,000 that can be resold for $75,000. The amount of $25,000 would be charged to research and development, and $75,000 would be capitalized. If the software product reached technological feasibility, the $75,000 would be included in the cost of the software product. If the technological feasibility of the software was never established, the $75,000 would be classified as inventory. ##### [985-20-55-15](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:e1087cf355a2b137c102f2aed5a31f34943cbb98757676090507cbe3ca76ac2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Estimates of future revenues or the remaining economic life for a product may change over the period in which the software product is being amortized. Amortization for any asset is based on estimates of future events, and software is no exception. The most recent information should be used to determine if changes to estimates should be made. ##### [985-20-55-16](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:8f3e3d9376290aaa9ee13236c0f41787242d4f1decc5350b3baed4f23b92110e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [985-20-35-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-1) indicates that straight-line amortization of a software product is computed over the remaining estimated economic life of the product. As such, the unamortized cost of the product should be divided by its remaining life, including the current year. ##### [985-20-55-17](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:2a6d89f0ba351e2847705b125dde3ca7372ea1a4cc3ed619c7548e790c61061e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the completed software product does not include all features that had originally been planned, the accounting depends on an evaluation of the modified product. If the product is saleable without the features that were dropped, no specific accounting is required. The net realizable value test controls the amount of capitalized costs. Application of the net realizable value test may result in a writeoff of some or all of the product's capitalized costs. If the product is not saleable without the dropped features, the technological feasibility of the product is not established. ##### [985-20-55-18](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:66c1e580c9e873c0a2e79e08399700a9c955e911c1148fa4b43f1a97760a9c41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Costs incurred for [product enhancements](https://asc.understandingaccounting.org/glossary/p/#product-enhancement "Improvements to an existing product that are intended to extend the life or improve significantly the marketability of the original product. Enhancements normally require a product design and may require a redesign of all or part of the existing product.") should be charged to expense as research and development until the technological feasibility of the enhancement has been established. If the original product will no longer be marketed, any unamortized cost of the original product should be included with the cost of the enhancement for purposes of applying the net realizable value test and amortization provisions. If the original product will remain on the market along with the enhancement, the unamortized cost of the original product should be allocated between the original product and the enhancement. ##### [985-20-55-19](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:8fa30245b7d027d89936eafc500009c9c68848f5a68d02a86dd39b61123e5306 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The estimated useful life of a product enhancement is the estimated life of the enhancement. It is not the remaining life of the original product nor is it the remaining life of the original product for any costs of the original product included in the enhancement and the estimated life of the enhancement for all other costs. All costs of a product enhancement, including any costs carried over or allocated from the original product, should be amortized over the enhancement's estimated useful life. ##### [985-20-55-20](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:010f6883f68ac159cb173e22739ffad321d2bbab74aabe4019a0766a9219dc9f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The technological feasibility criteria in paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) must be met for a product enhancement if the criteria had been met for the original product. ##### [985-20-55-21](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:0c370d63bb644e6fc64599c8864a70e3ee8b3063aae5bee104b788f2c1772d06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Product enhancements are specifically included in the scope of this Subtopic and, as such, are subject to the same requirements as any other software product. However, technological feasibility may be more easily established for a product enhancement than for a new product, and capitalization of costs may, therefore, begin relatively earlier in the software process. For example, an enhancement that adds one function to an already successful product may require only minor modifications to the original product's detail program design to establish technological feasibility. ##### [985-20-55-22](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:a186261e296387f7d51432c362e10a054abf0c92c285f441abf7fab127058457 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Similarly, in some cases, software that is ported (made available for a different piece of hardware) may not require a new detail program design, and capitalization of the enhancement costs may begin once any high-risk development issues have been resolved. #### Illustrations ##### [985-20-55-23](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:071598862b47c1db21160bf9f96ee3e91194878e0cf960744ee0496652f9eed0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the disclosure requirements of Topic 275 to risks and uncertainties related to capitalized software costs. This Example has the following assumptions. ##### [985-20-55-24](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:08e3ec8b865891e744342a69cdec424fad5c2c4a7d5fb871a19d1dcb59f660c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Software, Inc. develops and markets computer programs. In 20X3, it acquired a software entity. A significant portion of the purchase price was allocated to (capitalized) Product A (present net book value of $5 million), the most significant and profitable software program currently being marketed by the acquired entity. Only nominal amounts of other software costs have been capitalized. Software, Inc. expects Product A and its derivatives to be among its most significant products over the next several years. However, a competitor has recently released a new product designed to compete directly with Product A. Software, Inc. amortizes the capitalized software costs of Product A by the greater of the following: 1. a The ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product 2. b The straight-line method over the remaining estimated economic life of the product including the period being reported on, pursuant to this Subtopic. ##### [985-20-55-25](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:b705bdc76515f861950274eb25e9d79bae339e553e687f6f4597610c95536f28 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount of the amortization computed for the year 20X4 was equal to 20% of the beginning-of-the-year capitalized amount and was a significant component of cost of sales. ##### [985-20-55-26](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:86a735225e974a3e29b106b559980abeb85a99bdb149446e73bb45bbdecde576 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The segment of the computer software industry in which Software, Inc. operates is characterized by sales of products occurring primarily on the basis of customers' perceptions of the relative technical merits of competing products. Those perceptions are greatly influenced by product reviews in technical journals and advertising, and they can change rapidly. Innovative products have been introduced in recent years that have reduced quickly and significantly the volume of sales of preexisting products in the same market niche. While management of Software, Inc. believes its estimates of future gross revenues and the estimated economic life of Product A used in the determination of the amortization of capitalized software costs are reasonable, new products introduced by its competitors, such as the one discussed in paragraph [985-20-55-24](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-24), could have a significant near-term negative effect on such estimates. As a result, the amount of periodic amortization could increase in the near term in amounts that could be material to the entity's financial statements. ##### [985-20-55-27](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:622f5e7bdead35c60a3495b50ae25de7474c407e570f069692d5681a96f89386 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Software, Inc. would make the following disclosure. - Software, Inc.'s policy is to amortize capitalized software costs by the greater of the following: 1. a The ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product 2. b The straight-line method over the remaining estimated economic life of the product including the period being reported on. - It is reasonably possible that those estimates of anticipated future gross revenues, the remaining estimated economic life of the product, or both will be reduced significantly in the near term \[due to competitive pressures\]. As a result, the carrying amount of the capitalized software costs for Product A ($5 million) may be reduced materially in the near term. ##### [985-20-55-28](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:786bbf7e55c48cb950815aed40280614b54bf06e43a3b41433c21a0f61c11fd3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, the entity acknowledges that the carrying amount of its capitalized software costs is subject to significant uncertainty. The uncertainty relates to estimates of future years' revenues and useful lives that are made at the date of the financial statements, and the entity is aware that circumstances exist that could cause such estimates to change in the near term. The entity's disclosure makes clear that it is at least reasonably possible that the carrying amount could be reduced in the near term. ##### [985-20-55-29](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:e69d6c92fd8d30f9d6dfc56fd67cfc63eec5eaca735867196ea13fe110ab4228 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the amortization policy in the preceding illustrative disclosure is already disclosed elsewhere in the notes, it need not be repeated. The reference in brackets to competitive pressures in the preceding illustrative disclosure is an example of voluntary disclosure of factors that cause the estimate to be sensitive to change that is encouraged by paragraph [275-10-50-9](https://asc.understandingaccounting.org/asc/275/10/#275-10-50-9). Source downloaded (UTC): 2026-09-10T02:28:50.539Z to 2026-09-10T02:28:50.539Z Record version: sha256:181ce797d3d8f7be0114bc1e4c7d23d23432f314c26f69764e3e96185ba99890 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-60: 60 Relationships [Read section](https://asc.understandingaccounting.org/asc/985/20/#60-relationships) SEC content: no #### Intangibles—Goodwill and Other ##### [985-20-60-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-60-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:50.539Z to 2026-09-10T02:28:50.539Z Record version: sha256:5f5c137dccf000bdb4582a645e331c6c65db66c269c695c9d734b0dabe085372 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance to help determine whether software is developed for internal use or is subject to a plan to be marketed externally, see paragraphs [350-40-15-2 through 15-2C](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-2) and [350-40-15-5](https://asc.understandingaccounting.org/asc/350/40/#350-40-15-5). #### Research and Development ##### [985-20-60-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-60-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:50.539Z to 2026-09-10T02:28:50.539Z Record version: sha256:065d10dcddbc52e1fe197a274200367e62e97aeec17cd161f98ce22c35d30237 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the application of Subtopic 730-10 to costs incurred to purchase or lease computer software developed by others, see paragraph [730-10-25-3](https://asc.understandingaccounting.org/asc/730/10/#730-10-25-3). #### Software ##### [985-20-60-3](https://asc.understandingaccounting.org/asc/985/20/#985-20-60-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:50.539Z to 2026-09-10T02:28:50.539Z Record version: sha256:d269a52c5d3a1a09a0ac1a2ed627210fdc1de3d89f35e1c14f2e65412d4a9064 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For software-development arrangements that are fully or partially funded by a party other than the vendor that is developing the software and for which technological feasibility of the computer software product has not been established before entering into the arrangement, see Subtopic 730-20 on research and development arrangements.