There are many costs associated with starting and running a business, and determining whether those costs should be capitalized or expensed can provide challenges. Below is a summary of U.S. generally accepted accounting principles related to capitalization of start-up costs and website development costs.
Start-up costs are expenses related to opening a new facility, introducing a new product or service, conducting business in a new territory, or initiating a new process in an existing facility. Under FASB ASC 720-15, Other Expenses: Start-up Costs, businesses must expense these costs as incurred.
Accounting for website development costs can be trickier as more judgement is involved. There are five stages of developing a website. The following table summarizes how costs incurred at each stage are accounted for:
|
Stage |
Expense |
Capitalize |
|
Planning |
All costs |
N/A |
|
Website application/ infrastructure development |
|
|
|
Graphics development** |
It depends, refer to FASB ASC 350-40 / FASB ASC 985-20 |
It depends, refer to FASB ASC 350-40 / FASB ASC 985-20 |
|
Content development |
|
Costs for software employed to integrate a database with a website |
|
Operating |
All costs |
N/A |
* Expense if these costs 1) have no other future use and 2) are produced within the company and are part of a trial program or utilized for a particular research and development activity.
** Graphics development refers to modifications to the website to either maintain the website or improve it. If the graphics will be used in internal-use software, it should be accounted for using FASB ASC 350-40. If the graphics will be used in software marketed to third parties, it should be accounted for using FASB ASC 985-20.
Please contact us with any questions you may have regarding capitalization of costs. We are available to discuss and help you determine how to properly account for these costs.