Capitalizing Web Development Costs

As you know, you have a choice. In the long-run there should not be any real difference. But to truly follow the matching principle, capitalizing is preferable.

Hmmm. I understand your folder interpretation. But, if the enhancement opens up a new source of business (tablet owners) that generates future revenue, which could not have been captured previously, then I would want to match the revenue with the development expense. So I guess the question goes back to Steve - folder or new business generation?

Thank you for the comments so far. Let me add another comment. A customer using a laptop has full functionality of our website. Meaning, they can order, view the images, interact with the redecorating tools, etc. A customer using a tablet has limited functionality at this time. In order to bring the customer using a tablet up to the same level of functionality that the laptop user enjoys, it is necessary for us to add additional code in HTML5 to provide a new viewer. As technology changes and our customers use new devices, we must provide the support so their device interacts well with our products. Obviously we hope to generate additional business and not lose current customers who want to use tablets. Sorry but I do not know what the "folder" means.

Steve's answer would seem "new business", but I believe, in my humble opinion, that you are being too conservative in the interpretation of the matching principle.

And as Walter Cronkite used to say... "And that's the way it is", which is why we have dialogue and interpretation.

Accounting for website development costs depends on the stage in which they are incurred. There are 4 stages:
1) Planning the website
2) Developing the applications and infrastructure
3) Developing graphics and content
4) Operating the site

Broadly speaking 1 and 4 are expensed, 2 is capitalized, 3 is mixed (initial creation of graphics probably capitalized). Rebuilding functionality in HTLM5 would seem to fall squarely under #2, so you probably should capitalize if it's material and capitalizing is consistent with how you have treated other phases of the site's development.

We were under the impression of development "expense as you go" rather than capitalizing. What is the GAAP/FASB current literature regarding expense vs capitalizing development costs (please provide FASB# for reference)? Thanks.

I like the breakdown that Doug Thompson provides. However, as technology changes, various changes will be necessary to the website. Making the website flexible enough to handle multiple platforms does not, in my opinion, pass the "sniff test" of new functionality or sales generation. It seems more like modification/maintenance which would fall under 4. Operating Expense in Doug's outline. This is akin to modifying a molding machine to handle multiple sized customer tools, which would be a modification of the machine that would most likely be expensed ... not a "revenue generator" just because the machine can handle multiple customer tools.