It usually does. If a company really cares to follow GAAP to the letter, teams are supposed to estimate how much of their work should be categorized as maintenance or keeping the lights on, and that counts towards OpEx, while development work counts towards CapEx (R&D).
Context is that Companies prefer to spend capex, because it produces “depreciable assets” (your soon to be legacy software system), that make financials look better.
Then they use this to allocate a proportion of the salary towards one bucket or another.
Of course the lines are fuzzy and arbitrary in many cases, but 80/20 Cap/Op is the typical net distribution in departments that employ software engineers, from what I’ve seen.
>>If a company really cares to follow GAAP to the letter, teams are supposed to estimate how much of their work should be categorized as maintenance or keeping the lights on, and that counts towards OpEx, while development work counts towards CapEx (R&D).
The problem with following US GAAP 350-40-05-1D[1] to the letter is that if you capitalize development costs then you generally should only do this for internally developed software. If you "externally market" said software (which is now a capitalized asset on the balance sheet), which usually means selling to external customers upon which your revenue is then derived, you have to derecognize the capitalized asset before you can record any revenue.
IFRS differs from FASB (US GAAP) in this regard; it's more in line with what you noted. Having said this, since Squarespace is based in the US and subjects themselves to US GAAP, they expense all of their R&D costs. Skimming the S-1 it was interesting to note the $10.6MM in R&D credits for 2020 only (possibly due to the pandemic; not sure).
Only covers US W-2 labor. So perhaps that’s why. If only X% of labor force is elligeable and Y% of your FTE base is devs and Z% of their time is legitimate incremental novel work (defending one of those audits requires pulling GitHub/Jira/technical documentation support) then $11M is perhaps a reasonable number. YRMV.
I think it's less about the split between W2 FTEs and contractors, and instead that the R&D credits were likey government/state grants for high-tech innovation that helped to offset R&D costs, but Squarespace didn't really expand on this in their S-1.
Context is that Companies prefer to spend capex, because it produces “depreciable assets” (your soon to be legacy software system), that make financials look better.
Then they use this to allocate a proportion of the salary towards one bucket or another.
Of course the lines are fuzzy and arbitrary in many cases, but 80/20 Cap/Op is the typical net distribution in departments that employ software engineers, from what I’ve seen.