All of the following statements are true regarding accounting for software development costs except:
A) Firms must expense as incurred all costs incurred internally in developing computer software until such development achieves the technological feasibility of a product.
B) Firms must capitalize as incurred all costs incurred internally in developing computer software.
C) Researchers have found a significant association between costs and future earnings, which support capitalizing and amortizing product development costs permitted by U.S.GAAP and IFRS.
D) The interpretation of the meaning of technological feasibility has created diversity in the practice of accounting for software development costs.

Question

Quizplus · Accepted Answer

Option B is not entirely true. Under generally accepted accounting principles (GAAP), firms have the choice of either capitalizing or expensing software development costs. If a company decides to capitalize these costs, the amounts are recorded as an asset on the balance sheet and are then amortized over the useful life of the software. However, if a company decides to expense these costs, they are used up immediately and are recorded as an expense on the income statement. The choice of whether to capitalize or expense must be made before the software reaches technological feasibility.

All of the Following Statements Are True Regarding Accounting for Software