ASC 985-20 and AI-assisted development: how we capitalized our own platform

If your company builds software with AI assistants, the accounting question is the same one every SaaS founder eventually faces: which development costs belong on the balance sheet, and which belong in R&D expense?

At Axiomatic we answered that question on our own GAAP books. We capitalized qualifying Axiomatic Platform development under ASC 985-20, documented a technological feasibility milestone, posted the catch-up entry in our ledger, and reclassified founder contributed services to APIC before financing diligence. This article explains the framework—and how teams using Cursor, Claude, or similar tools can apply it to external product software vs internal tooling.

Two standards, two products

U.S. GAAP treats software differently depending on who will use it:

Software purpose	Standard	Typical profile
Sold, leased, or marketed to customers	ASC 985-20	SaaS ERP, vertical apps, SDKs you ship
Developed for internal use only	ASC 350-40	Admin consoles, data pipelines, internal automation

ASC 985-20 capitalizes costs incurred after technological feasibility and before general release, when the product is held for external sale. Costs before feasibility are expensed as R&D. Maintenance after release is expensed.

ASC 350-40 capitalizes internal-use software when the project reaches the application development stage—generally after management authorizes funding and completes the preliminary project stage. Again, earlier work is expensed.

The distinction matters for AI-native companies because the same engineering team often builds both a customer-facing product and internal accelerators. Tag costs to the right project early. Your CPA will thank you at diligence.

Technological feasibility under ASC 985-20

For external product software, capitalization begins when both are true:

1. You have a detailed program design or a working model of the product.
2. You can demonstrate that skills, hardware, and software technology exist to finish the product.

For Axiomatic Platform we established feasibility on February 24, 2026. That day we committed integrated product specifications—the DSL rule engine, the ERP module manifest, and the V1 roadmap—and a runnable monolith with ledger posting, entity model, and module shell. That combination is our feasibility evidence.

Work before that date was product definition and architecture planning. We expense it as pre-feasibility R&D on the Platform. That is separate from how we treat cash tooling spend (Cursor subscriptions, cloud APIs) which hits expense when we pay the invoice.

What we capitalized on our own ledger

From February 24 through June 4, 2026 we accumulated $49,679 of qualifying Platform ERP development labor at a documented imputed rate and allocation. We recorded a catch-up adjusting entry on April 30, 2026:

DR  Capitalized Software Development (1545)     $49,679
CR  Due to Owner / Shareholder (2300)           $49,679

No salary was paid during this period. The entry reflects founder contributed development services for capitalizable labor—not a cash loan and not a second salary expense line on the P&L.

Before investor diligence we reclassified the credit from the temporary Due to Owner account to equity:

DR  Due to Owner / Shareholder (2300)              $49,679
CR  APIC — Common, Contributed Services (3022)     $49,679

Our board adopted a consent documenting the policy: cash equity events credit APIC — Cash (3021); contributed services credit APIC — Contributed Services (3022). Trial balance and equity roll-forward now tell a clean story for data rooms.

We run this workflow on Axiomatic itself—chart of accounts, journal entries, board consent in Documents, and trial balance export for advisors.

Where AI-assisted development fits

AI coding tools change velocity, not the capitalization framework.

Qualifying costs under ASC 985-20 are still direct labor, contracted development, and other costs clearly attributable to bringing the product to market after feasibility. That includes founder time spent directing agents, reviewing diffs, integrating modules, and hardening production paths—when that work is on the external product.

Practical documentation for AI-native teams:

1. Project codes in your time or sprint tracker — separate Platform (985-20) from internal tools (350-40) and from experimental R&D.
2. Feasibility memo — date, evidence (specs, working model, repo milestone), and scope boundary.
3. Labor methodology — rate, allocation %, and why the hours are capitalizable.
4. Tooling invoices — Cursor, cloud, and API spend: expense when paid unless your CPA allocates specific post-feasibility amounts to the asset.
5. Board or governance record — especially for founder contributed services and equity sub-accounts.

Luca and our ledger tools help teams post these entries and attach evidence. The policy decisions remain yours, with your CPA.

Internal software: ASC 350-40

When software is only for your own operations—internal analytics, one-off scripts, tooling that never ships to customers—use ASC 350-40. Capitalization starts in the application development stage, not at the first prototype.

If you later decide to commercialize internal software, GAAP generally does not let you retroactively capitalize pre-decision costs as external product software. Plan the product boundary up front.

At Axiomatic we expense wallet and protocol work as R&D today because that stack is not held for commercial release. If management commits to marketing it later, ASC 985-20 capitalization would begin prospectively from that commitment date.

A checklist for your next close

• Identify each codebase or module as external product (985-20) or internal use (350-40).
• Write down your feasibility date and the evidence package.
• Quantify post-feasibility labor and third-party costs with a consistent methodology.
• Post the capitalization entry with a clear memo and supporting documents.
• Separate APIC — Cash from APIC — Contributed Services before fundraising.
• Have your CPA review the memo and entries before the data room opens.

Closing perspective

ASC 985-20 rewards disciplined product companies that can show when their sellable software became feasible and what it cost to finish. AI makes building faster; it does not remove the need for a defensible milestone and clean equity presentation.

We dogfood this on our own platform because verifiable finance starts at home. If you are capitalizing software development—or preparing to—talk with our team about running your books on the same ledger we use.

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This article describes Axiomatic Financial, Inc.'s accounting policy in general terms. It is educational material, not tax or legal advice. Work with your CPA and counsel before adopting capitalization treatment.