Glossary
The vocabulary the discipline lacks. Each term is defined by its posting consequence, which ledger line it drives, rather than in the abstract. Terms in pine have a standalone definition page.
Terms
- Token CapEx
- Treating token, compute and inference spend as a balance-sheet asset rather than period OpEx.
- Commitment vs consumption
- A signed commitment books as prepaid; consumption books as expense, COGS or a capitalized asset.
- Cloud computing arrangement (CCA)
- A hosting arrangement; if a service contract, the fee is expensed and only implementation may capitalize.
- Internal-use software
- Software built for the entity's own use; the ASC 350-40 scope that most buyer-owned AI falls in.
- Cost per million tokens
- The unit cost of inference; maps to cost of revenue when it serves a paid product.
- Prepaid asset
- Committed but unconsumed compute or credits held on the balance sheet until drawn down.
- Capitalize
- Record spend as a software asset, amortized over useful life, not expensed this period.
- Expense
- Recognize the cost in the current period P&L; the default for consumption.
- Cost of revenue (COGS)
- Token spend that is a direct input to a paid product; sits in gross margin.
- Split posting
- Allocating one commitment across capitalize, prepaid and expense on a documented basis.
- Development window
- The application-development stage during which internal-use build cost can be capitalized.
- Preliminary project stage
- Conceptual evaluation and vendor selection; expensed under ASC 350-40.
- Post-implementation stage
- Running and maintaining the software; expensed under ASC 350-40.
- Probable-to-complete threshold
- The ASU 2025-06 condition that must hold before internal-use software cost is capitalized.
- Significant development uncertainty
- The ASU 2025-06 gate blocking capitalization while feasibility is unproven.
- Technological feasibility
- The ASC 985-20 point at which capitalization begins for software to be sold or marketed.
- Research phase
- IAS 38 activity to gain new knowledge; always expensed.
- Development phase
- IAS 38 activity applying research to a plan; capitalized if six criteria are met.
- Six recognition criteria
- The IAS 38.57 conditions that must all be met to capitalize development.
- Amortization
- Spreading a capitalized asset's cost over its useful life.
- Useful life
- The period over which a capitalized AI asset generates benefit; capped by the commitment term.
- Impairment
- Writing down a capitalized asset whose carrying amount exceeds its recoverable amount.
- Executory contract
- An unperformed commitment kept off-balance-sheet until the service is received.
- Committed-use discount (CUD)
- A lower rate in exchange for a spending commitment; the commitment, not the discount, drives the posting.