Which cost is normally NOT capitalized as part of software developed for internal use?

In the context of accounting for software developed for internal use, certain costs are capitalized, meaning they are included in the value of the asset on the balance sheet rather than being expensed in the period incurred. However, some costs are not capitalized.

Training costs are typically not capitalized because they are considered operating expenses incurred after the software has been developed and is ready for use. These costs relate to preparing users to work with the software rather than the software's development itself.

Costs of data conversion, which involve transferring data from an old system to the new software, are often necessary but may not be capitalized as part of the software development. Typically, these costs are related to the operations that will occur once the system is operational.

Costs associated with the preliminary project stage, such as determining project requirements and feasibility studies, are also not capitalized. During this phase, no tangible or intangible assets are produced that provide future economic benefits; therefore, those costs are expensed as incurred.

Understanding these treatment differences is essential for proper financial reporting and compliance with applicable accounting standards, as correctly capitalizing or expensing costs affects the financial statements significantly.