Enterprise licenses versus software subscriptions explained

by Dell C. "D. C." Toedt III on 2011-10-22

Andrew Martin

Scott & Scott attorney Andrew Martin explains how from a financial-accounting perspective, a software subscription might be a better fit for a company than an enterprise license agreement, because a subscription might be an operational expense on the income statement instead of a depreciation expense that hits the balance sheet. Excerpt:

An EA spend is considered a capital expenditure and therefore hits the company’s balance sheet. As with any CAPEX, a company then must endure a fixed depreciation expense over the next few years, regardless of whether the company is fully utilizing its licenses. …

The Enterprise Subscription, on the other hand, is an operating expenditure reflected only on the company’s income statement. As an OPEX, business units often are freed from presenting their request to the CFO, so long as they have the budget for the purchase, and the accounting is simplified.

(Extra paragraphing added.)

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