The question if your website is an asset or not seems a simple one at first. However, there are a couple of factors to consider before you can capitalize or expense it on your financial statements.
In all honesty, your website has the potential to be one of the most valuable assets that your company owns. And it should be. Sadly, for most of the corporate websites out there, it is far from the case.
There are two sides to this question. First, is a website an intangible asset that you need to record and reflect on your organization’s Statement of Financial Position or Balance Sheet? Second, is your website an “asset” to your business? Is it useful and valuable, and contributes to your bottom line or at the very least saves you time and money?
International Accounting Standards
According to International Accounting Standards (IAS), an asset is a resource under an organization’s control as a result of past events and from which future economic benefits are expected to flow to the organization.
The IAS further defines an intangible asset as a non-monetary asset without physical substance, but that is still identifiable, either by being separable or arising from a contractual or legal right (IAS38).
If we consider the two definitions mentioned above, then your website can be an intangible asset for your company.
Your website is a non-monetary asset without physical substance, but it is still identifiable and separable. It’s also a resource under the control of your company. Even if you don’t handle the web hosting and development yourself, it is ultimately under your control.
The real deciding factor is if any economic benefit will flow from or through your website to your company in the future.
Recognition of a website as an Asset
Before we proceed, it is essential to know how to identify an asset. The following has to apply to be recognized and recorded as an asset;
- The future economic benefit of the asset will probably flow to the organization
- The cost of the asset can be measured reliable
An intangible asset like a website meets those criteria. It will initially be measured at cost and amortized over its expected useful life, which in today’s fast-changing digital world is relatively short.
The initial cost of an asset includes everything to get it to the point where it is used as intended.
In the case of a website, it includes all the web and software development, graphical design and content development cost. All of these costs are capitalized, but the operational cost like the cost of hosting, on-going maintenance and annual domain renewal fees are expenses incurred.
Usually, the costs incurred during the planning and research phase of website development are expensed and not capitalized. For more on why this is the case, you can read more on, SIC interpretation notes for Intangible assets – Website Costs.
The rules might differ slightly from country to country, and it can get a bit technical when it comes to what is allowed to be capitalized and what is not. Talk to your CPA or Tax Advisor to make sure that your unique situation is handled correctly.
So is a website an intangible asset or not?
If you are still not sure whether your website is an Intangible Asset, then ask yourself this: Is my website an economic benefit to my business? Does it generate money or even save money?
If you answered yes, then congratulations, your website is an asset, and you can capitalize the cost.
For an eCommerce site, the answer is simple since there is the intention to generate sales from the site, and if the website is well built and converts, then it probably will.
For millions of corporate website, on the other hand, it is not always as clear cut.
Yes, you might promote your brand and list your services on your website. You might even have a contact form for people to get in touch with you. But does it generate any concrete leads and sales? Does it save you money?
Is your website an Asset or an Ornament?
A website can and should be so much more than just an online presence or heaven forbid an electronic business card.
A website designed and developed with your target market in mind and with content that attracts, engages and delights your customers is an invaluable asset and a powerful tool in the right hands.
If your website is not an asset, then it’s a liability.
Not in the accounting sense but certainly a liability and a handicap to your business and brand.
But before you jump the gun and say you need a new website, you need to do some introspection and consider a couple of things first.
If you are ready to turn your website into one of your business’ biggest assets, then download this brand awareness survey – it’s your first step in realizing your website’s and your brand’s full potential.