Overview: Software Costs – Capitalize vs. Expense

When costs for software to be used internally by Stanford exceed $500,000, these costs are typically capitalized if they add future value to Stanford. Costs that do not provide additional value to Stanford are expensed.

For all software project costs exceeding $500,000*, the Software Costs – Capitalize vs. Expense Form needs to be filled out and submitted, along with the project charter, signed agreement and supporting documentation, to Business Affairs Finance and Facilities for Systems Governance Group (SGG) projects and Capital Accounting for non-SGG projects.

Use the decision tree below to help determine whether the software costs should be capitalized or expensed.

decision tree: 1) Software costs greater than $500K? If no, it is Expense. If yes, 2) Software used soley to meet Stanford's internal needs? If no, consult Controller's Office Capital Accounting; click for contact information. If yes, 3) Software to be hosted by the vendor? If no, continue to How To: Determine whether software costs should be capitalized or expensed page. If yes, 4) Can Stanford take possession without significantpenalty? If no, it is Expense. If yes, 5) Can Stanford or a third party host the software? If no, it is Expense. If yes, continue to How To: How To: Determine whether software costs should be capitalized or expensed page.

* For contracts signed after September 1, 2016, this amount will be increased to $1 million.

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