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Should Google Apps for Business be capitalized or expensed in one year?

Accounting For SaaS ExpenseWhen looking at the invoice for the Google Apps for Business there is a time period noted on the invoice, so I would assume this should be treated as a prepaid expense and amortized over the one year period. A colleague of mine says it should be written off over 3 years, the life for off the shelf software.

Answers

Topic Expert
Paul Benedetto
Title: CFO, Director of Finance, Consultant
Company: Nextwave Software, Rethink Fabrics
(CFO, Director of Finance, Consultant, Nextwave Software, Rethink Fabrics) |

Google Apps for Business is a subscription piece of software with a monthly or annual fee. As such, I would treat as a prepaid expense and amortize over the contract life. It is not a fixed asset; you are renting access to the tool.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

And if the yearly subscription rate isn't material, just expense it.

Prepaid assets accounts should have thresholds just like any other capital account.

Joan Green
Title: VP Finance
Company: National Counseling Group
(VP Finance, National Counseling Group) |

Even if it replaces software that had a value of three years, it should be over the shorter period of 1 year. At the end of one year, unless you renew, you do not have anything.

Robert Meybohm
Title: Owner
Company: Meybohm & Bodell, LLC
LinkedIn Profile
(Owner, Meybohm & Bodell, LLC) |

As a CPA, I can chime in and support the answer that others have already provided. In a subscription type of arrangement where you are just renting the software, you would not treat this payment as a fixed asset, but rather as a prepaid expense which would be amortized over the life of the contract term. Another gentleman commented quite rightly, that it may also not be worth the hassle to bother with all of the accounting to capitalize this cost and then amortize it; that depends on the materiality of the amount and the size of the company, and the amount of the contract, so there can be no hard and fast "rule" as to whether it would be appropriate to expense it all at once. From a practical perspective, this might make sense it many cases.

Cheers,

Robert

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