How to Account for Website Development – Part 1

Websites are a necessity for nonprofit organizations that want to compete for donor contributions in today’s social media based culture. In fact, websites are now considered the most basic form of providing a nonprofit’s mission and information to the public. Social media outlets such as Facebook, Twitter, and mobile applications (apps) are rapidly becoming the new essential means of connecting with the public. Social media is for another time however. The goal right now is to provide a clear description of how website development costs should be accounted for.

The cost to develop and care for a website hinges largely on the site’s functionality as well as the richness of the graphics. A site’s functionality depends primarily on what visitors to the website can do once at the site. The stage in which the costs are incurred plays a significant role in how the website development costs will ultimately be accounted for.

FASB Subtopic 350-50 and the sections contained within it provide guidance on accounting for website related costs. The guidance provides for website development costs however it DOES NOT apply to transactions and activities that include the cost of hardware or purchases of servers and other similar hardware infrastructure. The Subtopic discusses the capitalization or expensing of costs incurred in each of the following stages:

1. Planning
2. Application
3. Graphics
4. Content
5. Operating

FASB Section 350-50-25 references the stages of website development while Section 350-50-55 provides detail on the specific types of costs incurred and activities undertaken during the individual stages. The specifics will be discussed in the rest of this series.

It is important to note that for nonprofits that solicit contributions on their websites (fundraising activities) in addition to program, membership development, and general and administrative functions may need to consider the guidance for functional reporting of expenses found in FASB ASC 958-720.

If you feel you have a unique scenario and need help deciding how to account for your website please feel free to contact us.  Part of our job is to help you help yourself. This concludes part 1 of the series, stay tuned for more in this series.

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