USA When to begin capitalization for cloud-based software licenses/hosting/development cost?


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Hello,

I've received a bi-weekly bill that covers a 6 month billing period, for a 2 year service agreement. The bill includes subscriptions, licenses, hosting fees, and installations cost. The total bill covers 6 months only, Jan 2020 - July 2020. The software will not go live until December .

Currently we are planning to fully expense/amortize the bi-annual bill in December since the software will then be available for intended use. Should we have amortized this sooner or did we take the correct accounting approach with expenses once in use?

Thank you
 
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Joined
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Hi TXStaffAccountant
Usually in a construction project, you get to capitalize costs until the project is put into service. When you license the right to use a software, in some cases like yours, the service period starts whether or not your implementation is up and running. So your expense should have matched the license period, meaning you should have amortized this sooner.

Kat
 

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