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Capitalization of Software Costs

I see that there has been questions asked on this topic in the past but this is my dilemma. We developed a software and customized it for a third party, however the company will also use the same system internally and the idea is that we will market it to other customers. The company received compensation for the customization that was done for the first customer which we recoded as miscellaneous income. Can I capitalized the cost to develop the software (excluding the customization) and if so would that be considered an internal developed software or a software to be marketed and sold to outsiders? I think is the latest but would appreciate your comments. Thank you.

Answers

(Agent, JKS Solutions, Inc.) |

You will need to review the GAAP for both types of software development. Software developed for resale and Internally developed software. Because we cannot evaluate all the circumstances and materiality of your situation it is best for you to review the rules, perhaps speak to your CPA firm, especially if this area will be sampled for audit. If your revenue is materially impacted by sales of this software, then naturally the auditor will want to look at the accounting for the development costs.

Anthony Pascente
Title: CFO
Company: TWFG Financial Services
(CFO, TWFG Financial Services) |

Thank you Valerie

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