As technology has come to play a more important role in businesses, increasing levels of activity have been devoted to the development of computer software. This involves a number of undertakings.
Software licensed, purchased, or leased from others for internal use
Software obtained from others for resale in the normal course of business (either on a stand‐alone basis or as part of a larger product)
Software developed internally for sale to others
Software developed internally for the developer's own use
Software can be licensed, purchased, or leased and can reside on the user's hardware or be “hosted” by an application service provider (ASP) and leased to the user for remote use over the Internet. A growing set of accounting standards deal with some, but not all, of these issues.
The accounting for the cost of software developed internally for sale (or lease, etc.) to others is addressed by FAS 86; it provides that costs incurred prior to the point at which technological feasibility has been demonstrated are to be expensed as research and development costs, but specified costs incurred subsequently are capitalized, and later amortized or expensed (e.g., as cost of sales) as appropriate.
The cost of software acquired from others for resale in the normal course of business is not separately addressed by GAAP, but would be handled as are any other inventory costs. The usual inventory costing methods (LIFO, FIFO, etc.) and financial ...