Accounting for IT & Software Sector: Revenues and Expenditures to Consider

IT and software businesses are among the key sectors that require the specialised services of accounting firms in Dubai. Due to the complexity of the industry in terms of accounting, companies in the IT & software industry are advised to outsource their accounting requirements to a professional firm with considerable experience and expertise. Moreover, with the advancement of technology, accounting for the IT & software industry has become more challenging.

Developments such as cloud computing, quantum computing, artificial intelligence and cyber security have added to the intricacy of the industry. In this context, business owners need to put more focus on their finances and reporting for which accounting companies in Dubai can offer assistance. Read ahead to gain more insights on the revenues and expenditures related to the IT & software industry in UAE:

Expenditures Specific to the IT & Software Industry

While accounting for the finances of IT & software companies in the UAE, you should not ignore the following costs:

1. Software Research Cost

This cost is incurred in the research phase of a software company that may include manpower expenses (both in-house employees & freelancers), and fees for certain licenses etc. you need to expense off all the costs in the research phase as the company might be researching the unknown.

2. Software Development Cost

This cost is almost similar to the cost incurred during the research phase. However, you can capitalise on the development cost from the time in which technological feasibility is established up until the point the product is ready for release. You can amortise the capitalised costs over the life of the software product.

3. Cost to Obtain Contracts

This expenditure typically come in the form of sales commission, modification in the product for obtaining a contract etc. Incremental costs incurred by the company should be capitalised and amortised. Advice from accounting companies in Dubai will come in handy for you in this case.

4. Startup Costs

The startup costs in an IT company generally include the expenditure for setting up the infrastructure and technology requirements such as equipment, data storage, domain cost, web design, advertisement, marketing and surveys. IT company owners can expense off such costs as and when incurred

5. Intellectual Property Costs

IP costs include patents, trade secrets and technological know-how. The common IP transactions in a software and IT firm include licensing/royalty-based while some are transaction-based sales/other transfers. IP rights costs also include licensing arrangements. Accounting for IP rights costs must consider the pattern of economic benefits flowing to the IT firm.

6. Product Warranty Cost

The provision of a warranty is an important part of IT sales and services. Costs of standard warranties must be accrued when the relevant revenue is recognised.

Revenues Specific to the IT & Software Industry

You need to consider the revenues that are specific to the sector while accounting for the IT & Software Industry. Accounting firms in Dubai can help you with these revenues. The following are the revenues specific to the IT & Software Industry:

1. Sale of Licenses

Companies that are selling IP licenses are commonly known as SaaS providers. They are mostly providing licenses on a subscription model which are centrally hosted.

2. Sale of Third-Party Hardware and Software

It must be assessed whether the company is acting as an agent or principal. Revenue generated from sales of third-party vendor products must be recorded as net of costs if the company is serving as an agent. If the company is the principal, then revenue must be recognised on a gross basis.

3. Revenue from Extended Warranty

These revenues from such contracts are initially recorded as deferred income and subsequently recognized on a straight-line basis over the delivery period.

4. Upfront Fees

IT companies receive payment for part or all of the service before completing the service. This requires companies to consider whether the fee is associated with the transfer of promised goods or services or an advance payment for future goods or services

Hire the Best Chartered Accountants in Dubai, UAE

We have listed here the key expenses and revenues you must watch out for while accounting for the IT & software industry in the UAE. Given the complexity of the sector, it is advisable to hire the best accounting firms in Dubai such as Jitendra Chartered Accountants (JCA) for accounting for the industry.

JCA has highly qualified Chartered Accountants in Dubai, UAE who can diagnose the issues with your accounting department and provide insights. We can take care of your books of accounts to deliver professional financial reports that will help you attract loans and investments. By availing of JCA’s best accounting services in Dubai, you can also ensure your company’s financial health is in safe hands.