Capitalized production: how to account for it?

Updated March 29, 2026 - Capitalized production is a strategic accounting item that directly impacts your balance sheet, your operating result and your tax position. Whether you are developing software internally, carrying out technical fit-outs or manufacturing equipment for your own operations, the correct accounting treatment of these costs determines the reliability of your financial statements. In 2026, ANC Regulation 2022-06 and the BOFiP tax doctrine impose a precise framework that every business owner and accountant must master.

Capitalized production refers to goods or services that a company creates for its own use and records as assets on its balance sheet, instead of purchasing them from an external supplier. This mechanism translates into accounting terms the economic value of an investment made using internal resources.

Concrete examples of capitalized production:

• development of a business application or internal software platform;
• technical fit-outs and installations carried out by your own teams;
• manufacture of tools or equipment intended for operational use;
• creation of a high-value functional website;
• research and development work resulting in a capitalizable asset.

To complete your reading, see Optimization of tax results before the close of your accounting year, Taxation and business taxes and Taxation and déclarations: VAT, IS, advance payments.

Direct answer: To account for capitalized production, the company records a débit to the corresponding fixed asset account (class 2) and a credit to account 72 "Capitalized production." The amount retained is the cost of production, composed of direct costs and an allocable share of indirect costs. The asset is then depreciated over its useful life from the date it is commissioned.

The basic accounting entry is as follows:

The difficulty does not lie in the entry itself, but in the rigorous détermination of what can be capitalized and what constitutes an admissible production cost.

The capitalized production cost must be documented in a substantive and verifiable manner. ANC Regulation 2022-06 on the General Accounting Plan governs this valuation with précision.

Capitalizable direct costs#

Costs directly attributable to production can be included in the cost of the fixed asset:

• Direct labor: salaries, social charges and employee benefits of staff assigned to the project, pro-rated to time spent;
• Materials and supplies: components, raw materials and consumables used specifically for the creation of the asset;
• Subcontracting: external services directly related to the production of the fixed asset;
• Testing and commissioning costs: costs incurred to verify that the asset functions correctly before it is put into service.

Indirect costs: what share to retain?#

A fraction of indirect production overheads can be allocated to the cost of the fixed asset, provided it is directly attributable to the project. This may include:

• a portion of the structural costs of the technical department;
• depreciation of machines used for internal production;
• energy costs proportional to production activity.

On the other hand, the following are excluded from the production cost:

• general administrative overheads that cannot be allocated;
• costs of unsuccessful research;
• employee training costs;
• losses and wastage not inherent to the production process.

Hayot Expertise Advice: the right question is never "how can I improve results with capitalized production?" but "which costs genuinely meet the capitalization criteria and can be substantiated with documentary evidence?"

Account 72 capitalized production is the income account that records the counterpart of the capitalization. It is subdivided into several sub-accounts according to the nature of the asset produced:

This income item increases operating profit. It is offset for tax purposes by the deduction of corresponding expenses, subject to compliance with the capitalization conditions.

Capitalizing costs in accounting is not automatic. The BOFiP and ANC Regulation set out strict cumulative conditions.

General capitalization conditions#

For a cost to be capitalized, you must demonstrate:

1. The existence of an identifiable asset: the good or service created must be individually identifiable and capable of durable use (more than one financial year);
2. The probability of future economic benefits: the asset must generate measurable benefits or cost savings for the company;
3. The reliability of cost measurement: the production cost must be determined objectively and documented;
4. Effective commissioning: capitalization takes place on the date the asset is ready for use, not at the start of the project.

Special case of software development#

The accounting treatment of software development follows a two-phase logic:

• Research phase: expenditure is recorded as an expense (account 6). It can never be capitalized.
• Development phase: expenditure may be capitalized if the company demonstrates technical feasibility, the intention and capacity to complete the project, and the existence of economic prospects.

2026 Vigilance point: The tax authorities remain attentive to capitalizations of software development costs. Rigorous documentation (specification documents, time tracking, completion milestones) is essential in the event of a tax audit.

Year-end accounting for capitalized production is a major risk area for several reasons.

Impact on the accounting result#

Capitalized production increases operating income via account 72, which mechanically improves the reported result. If the capitalization is excessive or unjustified, the company presents an artificially inflated result, which can mislead third parties including banks, investors and partners.

Consequences on the depreciable base#

The capitalized cost determines the future depreciation base. Over-capitalization leads to excessive depreciation charges over several financial years, with a lasting negative effect on future reported results.

Risks in the event of a tax audit#

The tax authorities systematically review capitalized production transactions during their inspections. Non-compliance risks include:

• tax adjustments with surcharges and penalties;
• challenge of the depreciation base;
• penalties for insufficient documentation;
• reassessment over multiple financial years in the case of a recurring practice.

Documentation is your best protection. Here are the éléments we recommend systematically preparing:

• Project framework note: description of the asset created, objectives, project scope;
• Budget and actual tracking: dashboard of costs incurred by category;
• Timesheets: tracking of time spent by employees assigned to the project, validated by management;
• Justification for direct costs: invoices, purchase orders, material consumption records;
• Methodology note for indirect costs: allocation key used and justification;
• Commissioning record: date, state of the asset, formal decision to capitalize;
• Depreciation period note: référence to professional practices and BOFiP guidelines.

Our experience in practice leads us to identify the following recurring errors:

• Capitalizing current operating costs: general administrative overheads, training costs or routine maintenance expenditure are not capitalizable;
• Absence of evidence of time spent: without timesheets or activity tracking, the capitalization of direct labor is challengeable;
• Premature capitalization: capitalizing a project before it is technically complete and ready for use is an irregularity;
• Overlooking the link between capitalization and depreciation: every capitalized asset must be depreciated from commissioning; forgetting this step distorts subsequent financial years;
• Untreated negative capitalized production: where production costs exceed the recognized income, the accounting treatment must be explicit and justified.

<details> <summary>Is VAT applicable to capitalized production?</summary>

In principle, capitalized production is not subject to VAT because there is no delivery to a third party. The company does not collect VAT on the account 72 income. On the other hand, VAT on purchases and services used for production remains déductible under standard rules, provided that the produced asset gives rise to the right of deduction.

</details> <details> <summary>Can research and development costs be capitalized?</summary>

No. Fundamental and applied research costs are recorded as expenses for the financial year (account 6). Only development expenditure, occurring after the research phase and meeting strict conditions of feasibility and profitability, may be capitalized. This distinction is consistent with ANC Regulation 2022-06 and is monitored by the tax authorities.

</details> <details> <summary>What is the difference between capitalized production and an acquired fixed asset?</summary>

An acquired fixed asset is purchased from a third party and recorded at its acquisition cost (purchase price plus incidental costs). Capitalized production is created internally and recorded at its production cost. The tax treatment of depreciation is identical, but the valuation methodology and required documentation differ significantly.

</details> <details> <summary>How to handle negative capitalized production?</summary>

When production costs exceed the income recognized in account 72, the difference constitutes negative capitalized production. This situation must be analyzed case by case: either it results from an under-valuation of the income (to be corrected), or it reflects a genuine cost overrun. In the latter case, the excess costs remain as an expense and are not capitalized.

</details> <details> <summary>Is capitalized production subject to tax reintegration?</summary>

The income recorded in account 72 is not taxable as such, because it corresponds to already deducted expenses. However, if the capitalization conditions are not met — unidentifiable asset, undocumented costs, commissioning not established — the tax authorities may proceed to reintegrate the income into taxable profit, with the resulting tax consequences.

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We help you document the production cost, validate the accounting entries and measure the real tax impact before closing. Our firm supports businesses in implementing rigorous project monitoring procedures and justifying capitalizations.

Structure a solid accounting close

Capitalized production accounting is a technically demanding subject that deserves particular attention at each financial year-end. Well documented and correctly valued, it provides an accurate picture of the assets created by the company and optimizes the reading of its balance sheet. Poorly managed, it exposes the business to accounting corrections, tax reassessments and a loss of credibility with third parties.

(Official sources: ANC regulation 2022-06, BOFiP on fixed assets and cost assessment)