Cost of revenueIllustrative scenario
Production inference routed to cost of revenue
The posting
Production inference feeding a paid product is cost of revenue, not operating expense. Routing it correctly sizes AI gross margin and unit economics. Figures below are an illustrative example, not client data, to show the gross-margin consequence of the line choice ASC 350-40-35.
The posting
Cost of revenueIllustrative example, not client data
CapEx / Balance sheet
OpEx / P&L
No entry
DrCost of revenue$300,000
CrCash$300,000
The gross-margin consequence
On $1,000,000 of related revenue, routing $300,000 of inference to COGS reports 70% gross margin. Mislabeling the same $300,000 as operating expense would report 100% gross margin and understate the true cost of serving, an unit-economics distortion investors will unwind in diligence.
Posts to
Primary sources
- [S4] Weaver: Navigating internally developed software costs: U.S. GAAP vs tax treatment (US GAAP)
- [S1] KPMG: Hot Topic: Accounting for internal-use software (ASC 350-40) (US GAAP)
Ledger current as of 2026-07-24. A position and a citation, not accounting advice. See how we cite.