Renner Nonprofit News, February 14, 2018

Website Costs Won’t Weigh You Down

Joan M. Renner, CPA, CGMA, Shareholder, Renner and Company, CPA, P.C.

Like many nonprofit leaders, you’re probably putting the finishing touches on your year-end close.  You may need to make adjustments to record accrual items, or to apply complex areas of GAAP, and these entries can have a big effect on your bottom line.  There’s one year-end adjustment, though, that can help boost your bottom line, and that’s properly capitalizing your website development.

During the year, most nonprofits expense web development costs.  That’s where they’ve been budgeted.  But to comply with GAAP, you may need to review your website expenses and reclassify certain costs to the balance sheet.  The good news is, that if you’ve expensed significant website improvements during the year, this entry will lighten up your bottom line.

What website costs should be capitalized?

If you spent money creating a new site or adding new functionality to your existing site, you should capitalize these costs as intangible assets and amortize them over their useful life.  This includes front-end and back-end elements such as:

  • registering your domain name,
  • the navigation structure,
  • page layout,
  • graphic design,
  • your content management system,
  • database integration,
  • e-commerce functions,
  • search function,
  • online registration,
  • the donate now button,
  • a blog,
  • a multi-media feature,
  • additional security functions, and
  • many other functional applications.

Don’t capitalize these costs:

Expense the regular costs of operating your site, like web hosting, content updates, training, backups and minor adjustments.  Expense the cost to input content into a website and the cost of data conversion.  Also, when you’re dreaming up big ideas about what to do next and planning how to make them happen, that’s also an expense.

There’s GAAP for this.  You can find all the details in the Financial Accounting Standards Board Codification section that addresses website development costs, ASC 350-50.

Now is a good time to:

Review your website maintenance expense account for items that should be capitalized.

Reclassify capital website costs to intangible assets.

Amortize intangibles over the applicable useful life.

Consider the functional classification of your amortization expense.  It may represent program expense, fundraising expense or maybe even cost of sales.  Oops—that’s another can of worms for another nonprofit news day.

Need some help with audit prep?  Find out more about Renner and Company’s nonprofit services. (https://www.rennercpa.com/accounting-services-for-non-profits-associations/)

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