MSFT · 10-Q · 2026Q1 · Full report

R&D Capitalization Policy

MICROSOFT CORP · 2026-04-29 · Importance 6 · Surprise 6

Microsoft expenses internal research and development costs until technological feasibility of a software product is established, then capitalizes subsequent software development costs until the product is available for general release. The company considers technological feasibility to be reached after all high‑risk development issues have been resolved through coding and testing, typically shortly before production release. Capitalized costs are amortized and included in cost of revenue over the estimated life of the products. This policy affects timing of expense recognition for new software products across Microsoft’s software portfolio.

Key facts

• We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. source
• Costs incurred internally in researching and developing a software product to be marketed or sold to external users are charged to expense until technological feasibility has been established for the product. source
• Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. source
• Generally, this occurs shortly before the products are released to production. source