- Major Studies
- Advisory Reports
- Valuation Data
For IT managers, understanding the rules around accounting for software costs can be difficult. As a result, IT leaders often simply defer to their accounting departments to decide how software costs should be treated but never fully understand the rationale behind the decisions.
As shown in Figure 1 of the full report, Accounting for Software: Understanding CAPEX and OPEX, author Glen Alleman provides a primer on these key concepts. He explains the difference between capital expenditures (CAPEX) and operational expenditures (OPEX) and how they relate to accounting for software costs. He also outlines how these principles vary according to the application development method, whether a traditional waterfall approach or a newer iterative process, such as agile development. Finally, he highlights the factors that drive business leaders to favor CAPEX or OPEX in accounting for software.
To get an idea of how complex accounting for software costs can be, consider a few points: