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What are capitalized software costs?

Capitalized software costs could be composed of 3rd party costs or labor costs. These are basically costs incurred by the company to produce technology that will be sold to the general public.

As you can see in the visual below, once technological feasibility is achieved, the company can capitalize certain costs until the product is ready be released for sale. Any labor or 3rd party cost that is capitalized is expensed in the income statement through depreciation expense.


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