JE-130 Jun 2026Adjustingposted
Capitalize the qualifying development cost.
| Account | Dimensions | Debit | Credit |
|---|---|---|---|
| 1700 Capitalized software | 144,000 US Dollar | ||
| 6000 Wages and salaries | 144,000 US Dollar | ||
| Totals | 144,000 US Dollar | 144,000 US Dollar | |
Balanced.
Journal entry for capitalized software
Capitalize qualifying development cost by debiting Capitalized software and crediting the expense it was first booked to (usually wages). Once the software is ready for use, debit Amortization expense and credit Accumulated amortization each month over its useful life.
- Development cost
- $240,000
- Capitalized
- $144,000
- Monthly amortization
- $4,000
- Entity
- Illustrative company
- Basis
- Accrual
- Currency
- USD
- Period
- June – July 2026
The worked example
Engineers spend $240,000 of salary building an internal billing platform; 60% of it falls in the application development stage and qualifies. $144,000 is capitalized, $96,000 stays in expense, and the platform goes live on July 1, 2026 with a three-year life — $4,000 of amortization a month.
Adjusting entry · June 30, 2026
Adjusting entry · July 31, 2026
JE-231 Jul 2026Adjustingposted
Amortize the first month after go-live.
Journal entry JE-2, 2 lines Account Dimensions Debit Credit 6410 Amortization expense 4,000 US Dollar 1710 Accumulated amortization 4,000 US Dollar Totals 4,000 US Dollar 4,000 US Dollar Balanced.
What the entries do to the accounts
Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.
| Account | Debit | Credit |
|---|---|---|
| 1700 Capitalized software | 144,000 US Dollar | |
| 1710 Accumulated amortization | 4,000 US Dollar | |
| 6000 Wages and salaries | 144,000 US Dollar | |
| 6410 Amortization expense | 4,000 US Dollar | |
| Totals | 148,000 US Dollar | 148,000 US Dollar |
Why it is booked this way
Software built for the company's own use is an asset once it is in the development stage: the cost of building it buys years of use. The salaries that built it were booked to expense when paid, so capitalizing moves the qualifying share onto the balance sheet.
From the go-live date the asset is amortized over its useful life, so the cost lands in the periods that benefit from the software.
Common mistakes
- Capitalizing every engineering salary, including maintenance and bug-fixing on live features.
- Starting amortization when the project starts, not when it is ready for use.
- Confusing book capitalization under ASC 350-40 with the tax capitalization of research costs under Section 174.
Questions
- Which costs can be capitalized?
- Under ASC 350-40, costs in the application development stage — coding, testing, configuring — once management has committed to the project and completion is probable. Planning, training, data conversion and maintenance are expensed.
- When does amortization start?
- From the date the software is ready for its intended use, straight-line over its expected useful life, unless another pattern better reflects how it is used.
Terms on this page
Work with this entry
The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.
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An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.