Booking of software development costs

Booking software development costs in QuickBooks involves categorizing these expenses accurately to track your costs and maintain an accurate financial record. You’ll typically record software development costs as expenses, but you may need to differentiate between research and development (R&D) costs and capitalized costs, depending on your accounting and tax treatment. Here’s how to do it:

Method 1: Recording Software Development Costs as Expenses

1. Log in to QuickBooks: Open QuickBooks and log in to your company file.
2. Create an Expense Account: a. If you don’t already have an expense account for software development costs, go to the “Lists” menu and select “Chart of Accounts.” b. Click on “Account” and then “New” to create a new expense account. Name it something like “Software Development Expenses.”
3. Enter the Expense Transaction: a. Go to the “Banking” menu and select “Write Checks” or “Enter Bills,” depending on whether you have already paid the software development costs or plan to pay them in the future.b. In the “Pay to the Order of” field, select the vendor or supplier who provided the software development services.

   c. In the “Expenses” tab or the “Item Details” section (depending on whether you are using a bill or check), choose the software development expense account created in step 2.

   d. Enter the amount you paid for the software development services.

   e. Include a memo or description to specify that this is the payment for software development costs, and provide any necessary details.

   f. Specify the payment method (e.g., check, electronic transfer, or credit card).

   g. Enter the date of the payment.

4. Save and Record the Transaction: a. Click “Save and Close” (if you used “Write Checks”) or “Save and Close” (if you used “Enter Bills”) to save and record the expense transaction.

Method 2: Capitalizing Software Development Costs

In some cases, you may be required to capitalize certain software development costs. To do this, you’ll need to set up an asset account for capitalized software development costs:

1. Log in to QuickBooks: Open QuickBooks and log in to your company file.
2. Create an Asset Account: a. Go to the “Lists” menu and select “Chart of Accounts.” b. Click on “Account” and then “New” to create a new asset account. Name it something like “Capitalized Software Development Costs.”
3. Enter the Asset Transaction: a. Go to the “Banking” menu and select “Write Checks” or “Enter Bills,” depending on whether you have already paid the software development costs or plan to pay them in the future.b. In the “Pay to the Order of” field, select the vendor or supplier who provided the software development services.

   c. In the “Expenses” tab or the “Item Details” section (depending on whether you are using a bill or check), choose the capitalized software development asset account created in step 2.

   d. Enter the amount you paid for the software development services.

   e. Include a memo or description to specify that this is a capitalized software development cost, and provide any necessary details.

   f. Specify the payment method (e.g., check, electronic transfer, or credit card).

   g. Enter the date of the payment.

4. Save and Record the Transaction: a. Click “Save and Close” (if you used “Write Checks”) or “Save and Close” (if you used “Enter Bills”) to save and record the asset transaction.

By following one of these methods, you’ll accurately book software development costs in QuickBooks, whether as expenses or capitalized costs, based on your specific business and accounting practices. Always consult with your accountant or financial advisor to ensure you’re accounting for software development costs correctly according to your specific needs and applicable accounting standards.