ASC 350-40: Internal-Use Software
ASC 350-40 is the U.S. GAAP standard for capitalizing internal-use software — software built or bought to run your own business, not to sell.
In plain terms: if you build software to run your own business — an internal tool, or the platform behind your SaaS — ASC 350-40 tells you which build costs become an asset and which are expensed.
ASC 350-40 (Intangibles — Goodwill and Other: Internal-Use Software) splits a project into three stages:
- Preliminary project stage — planning and evaluating options. Expensed.
- Application development stage — designing, coding, testing, and configuring the software. Capitalized, once the project is funded and probable to complete.
- Post-implementation stage — maintenance, training, support. Expensed.
Direct costs in the application-development stage — engineering labor, contractor fees, and the tooling used to build the software — can be capitalized; general overhead cannot. Implementation costs for hosted (SaaS) software a company uses for itself follow the same model.
A 2025 update, ASU 2025-06, replaces the three-stage model with a single “probable-to-complete” threshold for fiscal years beginning after December 15, 2027.
See also: internal-use software in the capitalization guide.
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