Mechanics
Internal-use vs sold: which US GAAP standard governs
The posting
The first US GAAP question is whether your AI is for internal use or is part of a product sold or marketed to customers. Internal use falls under ASC 350-40; software sold, leased or marketed falls under ASC 985-20, which starts capitalization only at technological feasibility ASC 985-20-25. Get this wrong and every downstream posting is on the wrong standard.
The test
- Do customers receive or pay for the software itself, or AI embedded in it? If yes, ASC 985-20.
- Do you run it internally to operate the business? If yes, ASC 350-40-25.
Dual use
Where an AI system serves both internal operations and a sold product, apply judgement to the predominant use and, where separable, allocate costs to the standard that governs each use. Document the determination before posting.
Posts to
Primary sources
- [S1] KPMG: Hot Topic: Accounting for internal-use software (ASC 350-40) (US GAAP)
- [S4] Weaver: Navigating internally developed software costs: U.S. GAAP vs tax treatment (US GAAP)
Ledger current as of 2026-07-24. A position and a citation, not accounting advice. See how we cite.