A completely new website, or the addition of significant new functionality, requires an analysis of the costs involved in the various stages of development. Some of these costs will be capitalized and amortized over time; others will be accounted for as incurred. There are many costs associated with creating and operating a business, and determining whether those costs should be capitalized or spent can create challenges. Below is a summary of generally accepted U.S.
accounting principles. Costs of software used to integrate a database with a website. Accounting for website development costs depends on the current stage of site development. At the planning stage and once the website is completed, all costs are charged as incurred; however, at the website development stage, the guidance is not as clear.
As the site develops, the costs to develop any application software on the website are capitalized, but other costs are charged. Website updates and improvements can be capitalized on, but only if additional features are added. According to the International Accounting Standards Board (via IAS 38 and SIC 3), the different stages of website creation should have a different accounting treatment. The initial planning stage is an expense and is included in the profit and loss statement.
The creation of the website must be capitalized as an asset on the balance sheet. Any subsequent updates you make to the content of the website will be considered an expense. Payments for leased or licensed software used for your website are currently deductible as ordinary and necessary business expenses under Sec. If you take the position that your website is primarily for advertising, you can currently deduct internal website software development costs as an ordinary and necessary business expense.