Capitalizing Internal-Use Software Costs Under ASC 350-40

Why This Standard Matters

• ASC 350-40 tells you when software built or bought for internal use should be capitalized as an asset instead of expensed as incurred.
• For SaaS companies whose product runs on cloud infrastructure, much of the platform they sell is treated as internal-use software under this guidance.
• Capitalizing qualifying development costs moves spend off the income statement and onto the balance sheet, which changes reported profitability and EBITDA.
• Because it can materially shift margins, investors and auditors scrutinize a startup's capitalization policy closely.