What costs should be expensed when developing internal-use software under U.S. GAAP?

When developing internal-use software under U.S. GAAP, costs incurred in the preliminary project stage and training must be expensed. This is because these costs do not contribute directly to the software's development and functionality when it is being actively constructed.

The preliminary project stage often includes activities such as determining project feasibility, selecting technology, and planning the project, which are essential for decision-making but do not enhance the software's capabilities or usability directly. As a result, these costs are considered routine and necessary for the overall project planning, not the actual development phase where costs would be capitalized.

In contrast, costs directly associated with the development of the software, such as coding and testing, would typically be capitalized as part of the overall software costs. Similarly, once the software is completed, ongoing costs or those related to training employees on the new system would typically be expensed, as they do not add value to the software directly after its completion.

Therefore, the selection of costs incurred in the preliminary project stage and training as expenses aligns with the proper accounting treatment under U.S. GAAP, ensuring that financial statements accurately reflect the attributable costs of software development.