Overview of SOP 97-2

SOP 97-2 provides guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing, or otherwise marketing computer software. It should be applied to those activities by all entities that earn such revenue. It does not apply, however, to revenue earned on products or services containing software that is incidental to the products or services as a whole.

General terms:

• Software - programs that control the funtioning of hardware and direct its operation.
• System software - software required to support production or execution of application programs but which is not specific to any particular application.
• Application software - programs that allow users to carry out certain activities.
• Enterprise resource planning (ERP) software - business management software system that provides different modules that integrate all facets of the business including the planning, manufacturing, sales, and marketing.
• Firmware - Software stores in read-only memory (ROM) or programmable ROM (PROM). Firmware is responsible for the behavior of a machine when it is first switched on.
• Hardware - the physical material parts of a computer or other system.
• Code - Instructions for a computer written in some programming language.
• Source code - Code written by a programmer in a formal programming language and readable by people but not computers. Source code must be converted to object code or machine language before a computer can read or execute the program.
• Object code - the machine code generated by a source code language processor such as an assembler or compiler. A file of object code may be immediately executable or it may require linking with other object code files.