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Capitalizing Software Development Costs: SOP 98-1 Simplified

Capitalizing software development costs in accordance with SOP 98-1 guidelines is simplified with TrackerSuite.Net, which allows organizations to easily identify and segregate capital versus non-capital software development work and expenditures.

TrackerSuite.Net is suite of Web based applications that simplifies compliance with SOP 98-1 guidelines for internal software projects, with integrated solutions for Project Management, Time and Expense Reporting. TrackerSuite.Net also includes modules for Purchasing and Payment Requests that improve the quality and security of the purchase to pay process.

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Using TrackerSuite.Net, organizations seeking to capitalize their internal software development costs can:

  • Assign account codes to tasks. These account codes identify labor which can be capitalized, such as actual development work, and that which cannot, such as activities within the preliminary stage of the project, when team members are creating their Web timesheets.
  • Separate capital from non-capital expenditures using General Ledger coding provided in expense reports, purchase orders and check requests.

Managing Internal Software Projects

As well as simplifying software development capitalization in accordance with SOP 98-1, TrackerSuite.Net modules also provide a number of features that also simplify the project itself, streamlining workflow, automating processes and provided tools for tracking and monitoring project progress and costs.

Streamlining Workflow

Automating Processes

  • Timesheets, expense reports and purchase orders are automatically routed through the approval process.
  • "Auto Nag" email reminders ensure that users submit their timesheets regularly. Similarly, automated reminders for status reports put managers one click away from their reporting responsibilities.

Tracking Progress and Costs


Configure budgets with capital and non-capital allotments

Leverage Account Codes to Capitalize Internal Software Development Labor

Guidelines for SOP 98-1

Under SOP 98-1, companies are required to capitalize the costs associated with developing or purchasing software designated for internal use. Only certain costs may be capitalized, and only within particular stages of the internal software development project.

For example, the preliminary stage of an internal software project typically involves determining what is actually required of the solution, and possible alternatives to its development. All incurred costs for these activities must be expensed, as they are not considered a direct cost of the software’s development.

Once the project moves into actual development, costs may be capitalized, but only external direct costs of materials and services utilized in developing or purchasing the software, not costs such as overhead. If the organization contracts outside developers for the project, it may capitalize the payroll (and certain payroll-related costs) for those developers, but not their living expenses such as housing or vehicle rentals.

If the organization chooses to purchase the software instead of developing it, they can only capitalize the actual software. Other costs, such as training, maintenance, typical data conversion routines, unspecified upgrades and re-engineering should be expensed as they are incurred.

Complying with SOP 98-1 offers organizations a means to improve the way they manage information technology, to clarify its value and capabilities on an ongoing basis, and encourage a review of existing software assets and their performance. In this regard it often dovetails with an organization’s Sarbanes Oxley / Purchase to Pay initiatives, providing justification for procuring software or development services for internal projects.