Video Game Development - Preliminary Project Stage (Expensed as Incurred)
Expensing internal-use software and game development costs during the preliminary project stage — before technological feasibility is established — because future benefit cannot be demonstrated.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Research & Development Expense - Game Development (Pre-Feasibility) | Expense (+) | 8,500,000.00 | - |
| Salaries Payable / Cash (Developer Wages - Pre-Feasibility) | Liability (+) / Asset (-) | - | 8,500,000.00 |
💡 Accountant's Note
Under ASC 350-40 (Internal-Use Software) and ASC 985-20 (Software to be Sold), game development costs are expensed during the preliminary project stage — before the project's feasibility is established and management commits to completing the project. For internally developed games, costs in the conceptual design phase (proof of concept, game design document creation, early prototyping, technology evaluation) are expensed as incurred. Under IFRS (IAS 38), all research phase costs are expensed; development phase costs (after technical feasibility is demonstrated) are capitalized — creating a significant difference from US GAAP for international game studios.
Practitioner & Systems Framework
💻 ERP Architecture
Game development studios must track time and expenses by project and by development phase (preliminary/research vs. application development/capitalization phase). Employee time tracking systems (Harvest, Jira time tracking) must code hours to the correct phase. The transition from preliminary to application development (the capitalization trigger) requires a formal milestone documentation — typically when a 'vertical slice' prototype demonstrates technical feasibility of the game concept.
⚠️ Audit Flags
The preliminary vs. capitalization stage boundary is the most scrutinized aspect of game development accounting. Auditors challenge whether costs are being expensed too long (understating the asset) or capitalized too early (overstating the asset). The 'technological feasibility' determination (ASC 985-20) requires a detailed product design with all major risks resolved — a working alpha prototype with core gameplay mechanics is typical evidence.
📄 Required Documentation
Time tracking records by developer and project, project phase classification (preliminary vs. application development), technological feasibility milestone documentation, preliminary stage cost calculation (hours × loaded cost rates), project status reports confirming phase transition.
Professional Excel Template
Get the automated version of this entry. Includes built-in IFRS checks, VAT calculators, and SAP-ready upload formats.
Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.