BAR, Business Analysis and Reporting

Sources for Internally Developed Software

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's BAR lessons on Internally Developed Software. The topic rests on ASC 350-40 / ASC 985-20.

About this topic

Software costs are the one asset class where the same programmer, writing the same code, produces an asset at one company and an expense at another. What separates the two is not the work. It is who will use the software once it is finished.

That single question splits the Topic, and the split is the thing to hold on to. Software the entity will run itself falls under ASC 350-40, internal-use software. Software the entity will sell, lease, or otherwise market falls under ASC 985-20. Which of those two models applies is what most items in this group actually turn on.

Key points

Internal-use software costs are capitalized beginning at the application development stage and expensed during preliminary project and post-implementation.
Software to be sold, leased, or marketed follows ASC 985-20: costs are expensed until technological feasibility, then capitalized.
Capitalized costs include coding, testing, and installation; training and data conversion are expensed.
Cloud computing arrangement costs follow the internal-use software rules if the customer has a software license.

What the lessons cover

Two regimes hinge on who uses the software
Internal-use software: capitalize the application-development stage
Software to be sold: technological feasibility is the trigger
Amortization and impairment
The two models side by side
Hosting arrangements: the customer's implementation costs (ASC 350-40-25-18)
Website development costs, and the ASU 2025-06 rewrite

Authoritative references

Which model applies:

ASC 350-40, internal-use software, and ASC 985-20, software to be sold, leased, or otherwise marketed.
ASC 350-40-15-2, 15-2A, 15-2B and 15-2C, the two characteristics of internal-use software, both of which must hold, and the application to individual components or modules.
ASC 350-40-15-4, 15-4A, 15-5 and 15-7, software developed for others under contract, software embedded in a chip, and the two populations that go to ASC 730-10.
ASC 985-20-15-2 and 15-5 through 15-7, software marketed as a separate product or as part of a product or process, hosting arrangements from the vendor's side, the significant penalty concept, and the return to Subtopic 350-40.

Internal-use software: recognition and measurement:

ASC 350-40-25-1 through 25-6, preliminary project stage costs expensed as incurred, application development stage costs capitalized, data-access and conversion software, and training and data conversion expensed.
ASC 350-40-25-10 through 25-15, upgrades and enhancements, the two gates that open together before capitalizing at 25-12, development uncertainty at 25-12A, the probability test at 25-13, the end of capitalization at 25-14, and the old software's cost at 25-15.
ASC 350-40-25-17F through 25-17J and 25-18, the website development series as renumbered, and the capitalizing of qualifying implementation work for a hosting arrangement that is a service contract.
ASC 350-40-30-1 through 30-4, interest capitalized under Subtopic 835-20, its cessation when activities stop, the bar on general and administrative and overhead costs, and the allocation of cost among elements.
ASC 350-40-35-1 through 35-3 and 35-11 and 35-12, impairment through ASC 360-10-35 and the abandonment guidance at ASC 360-10-35-47 through 35-49.
ASC 350-40-35-4 through 35-6 and 35-13 through 35-16, amortization on the straight-line basis unless another is more representative, the useful life factors, and amortization over the term of the hosting arrangement.
ASC 350-40-35-7 through 35-10, the decision to sell made after or during development, the rule that no revenue or profit is recognized, and the application of ASC 985-20.
ASC 350-40-45-1 through 45-3 and 50-2 and 50-3, presentation in the same line item as hosting fees, the cash flow classification, and the disclosures.
ASC 350-40-55-4 and 55-5 through 55-21, the illustrations of stage labels that do not decide the answer and four fact patterns.

Software to be sold: ASC 985-20:

ASC 985-20-25-1 through 25-6, research and development costs expensed until technological feasibility is established, product masters capitalized, software integral to a product or process, the allocation of programmer-related overhead, and the end of capitalization at general release.
ASC 985-20-25-8, 25-9 and 25-11, purchased software with no alternative future use, tested at the purchase date, and duplication and packaging sent to Subtopic 985-330.
ASC 985-20-35-1 through 35-4, amortization from general release and the net realizable value test at each balance sheet date.
ASC 985-20-55-4, deferring capitalization until the working model criteria are met.

Website development and related Topics:

ASC 350-50-05-1, 15-1 through 15-3, 25-1 through 25-17 and 55-6, the superseded website development Subtopic, including planning costs, content, hosting, domain registration, and search engine registration, replaced by ASU 2025-06.
ASC 720-35-25-1, advertising costs, including search engine registration, expensed as incurred.
ASC 730-10, research and development, which expenses entirely software written for a particular project.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.