Accounting for Website Development Costs

Many companies incur significant costs in relation to developing and maintaining internet websites to promote or advertise their products or services. Proper accounting for website development costs are becoming a significant issue among small companies and the accounting community has noticed a lack of consistency with respect to its treatment. Some companies consider website development costs as assets, while others treat such costs as expense. These issues become even more challenging for companies that conduct significant e-commerce business and make substantial investments in their websites.

For companies that maintain their accounting records in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP), Financial Accounting Standard Board (FASB) provides the following guidance for the proper treatment of various website development costs:

  • Costs incurred in the planning stage – This includes all costs in the development of a new website. Regardless of whether the website planning activities specifically relate to software, all costs incurred in the planning stage shall be expensed as incurred.
  • Costs incurred in the website application and infrastructure development stage – This includes the cost of acquiring or developing hardware and software to operate the website for the entity’s own use. Such costs, which usually comprise the bulk of the project, are generally capitalized. Fees incurred for website hosting, which involves the payment of a specified, periodic fee to an internet service provider in return for hosting the website on its server(s) connected to the internet, generally would be expensed over the period of the benefit. Costs to obtain and register an internet domain shall be treated as an asset.
  • Costs incurred to develop graphics – This includes the overall design of the web page (use of borders, background and text colors, fonts, frames, buttons, and so forth). Graphics are components of software and therefore the costs of developing initial graphics are generally treated as an asset.
  • Costs incurred to develop content – Content refers to information included on the website, for example, articles, product photos, maps, and stock quotes and charts are all forms of content. These costs should be expensed as incurred.
  • Costs incurred in the operating stage – Costs incurred during the operating stage include training, administration, maintenance, and other costs to operate an existing website. These costs should be expensed as incurred.

Generally, capitalization of costs related to website development is only permissible when the preliminary project stage has been completed. This stage is usually attained when management authorizes and commits to funding the project and it is probable that the project will be completed and will be used to perform the function intended.

Entities should periodically review existing accounting policies to ensure that they reflect the requirements of accounting standards and interpretations. Martini, Iosue and Akpovi will be happy to assist with accounting issues related to this matter.

Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have questions or want more information.

Sources:
www.accountingresearchmanager.com (Financial Accounting foundation, Norwalk, Connecticut. 2013 Wolters Kluwer)
www.fasb.org (EITF Abstracts, Accounting for Web Site Development Costs)

 

2 responses to “Accounting for Website Development Costs

Comments are closed.
Share:
Man digging for gold
Can your business become more profitable without venturing out of…
two men having lunch and discussing a chart on a clipboard
In the course of operating your business, you probably spend…
Person looking at a financial report
There are three types of financial statements under U.S. Generally…