GPU Cloud Credits Accounting Treatment

Startups using GPU cloud providers like Lambda Labs, RunPod, and others often prepay for compute credits to train AI models. Understanding the proper accounting treatment for these credits matters for accurate financial reporting and tax compliance.

Last verified: November 2025

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Overview

GPU cloud credits represent prepaid access to computing resources. The accounting treatment depends on whether you use cash or accrual basis accounting, the contract terms, and the timing of when you use the credits. Most startups will record these as either prepaid expenses or current period expenses based on the IRS 12-month rule.

References: IRS Publication 535, IRS Publication 538

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What Are GPU Cloud Credits

GPU cloud credits are prepaid amounts that allow you to access computing resources from providers like Lambda Labs, RunPod, Paperspace, or major cloud platforms. These credits work similarly to gift cards, where you pay upfront and draw down the balance as you consume GPU hours for model training, inference, or other compute tasks.

Many startups receive credits through programs like NVIDIA Inception, Microsoft for Startups, or Google for Startups Cloud Program, which can range from $1,000 to $250,000 or more.

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Tax Treatment for Cash Basis Taxpayers

The IRS 12-Month Rule

Cash basis taxpayers can often deduct prepaid GPU credits in the year of payment if the credits meet the 12-month rule requirements. Under this rule, you can deduct a prepaid expense in the current year if the benefit does not extend beyond the earlier of:

• 12 months after you first receive the benefit
• The end of the tax year following the year you made the payment

Example: Your startup pays $10,000 for GPU credits on December 15, 2024. The credits expire on December 31, 2025. Because the benefit extends more than 12 months from when you can first use them, you must capitalize the expense and deduct it as you use the credits.

Example: You pay $6,000 for GPU credits on November 1, 2024 that expire on October 31, 2025. The 12-month rule applies. You can deduct the full $6,000 in 2024 because the benefit does not extend beyond 12 months from November 1, 2024.

Reference: IRS Publication 538 on Accounting Methods

Credits That Do Not Qualify

If your GPU credits have benefits extending beyond the 12-month threshold, you must capitalize them as a prepaid expense and amortize the cost over the period you expect to use them. This applies to multi-year contracts or credits with extended expiration dates.

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Tax Treatment for Accrual Basis Taxpayers

Accrual basis taxpayers face more complex rules when deducting prepaid GPU credits. You must meet both the all-events test and economic performance test before deducting the expense.

All-Events Test

The liability must be fixed and the amount determinable. For GPU credits, this occurs when you enter the contract and pay for the credits.

Economic Performance Test

For services, economic performance generally occurs as the service is provided. GPU computing is treated as a service, meaning the expense is deductible as you actually consume the credits and use the computing resources.

However, there is an exception: if you can reasonably expect the provider to deliver the service within 3.5 months after payment, economic performance is deemed to occur at the time of payment.

Reference: IRS Publication 535 on Business Expenses

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Accounting Treatment Under ASC 606

For financial reporting purposes, companies must follow ASC 606 revenue recognition standards, which also impact how you account for prepaid expenses.

Initial Recognition

When you purchase GPU credits, record them as a prepaid asset on your balance sheet:

Debit: Prepaid Expenses (or Prepaid Computing Costs)
Credit: Cash or Accounts Payable

Recognizing the Expense

As you consume the credits for GPU usage, reduce the prepaid asset and recognize the expense:

Debit: Computing Expenses (or Research and Development)
Credit: Prepaid Expenses

The expense should match the pattern in which you consume the credits. If you use $2,000 of credits in January from a $10,000 prepaid balance, you would recognize $2,000 as an expense that month.

Expiration and Breakage

Some GPU credits expire unused. When credits expire, write off the remaining prepaid balance:

Debit: Computing Expenses (or Other Expenses)
Credit: Prepaid Expenses

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Special Considerations for Startup Credits

Many startups receive free or discounted GPU credits through accelerator programs, cloud provider partnerships, or venture capital connections. These promotional credits still require proper accounting.

Free Credits Received

When you receive free credits with no purchase obligation, you do not record an asset or expense until you use them. Track the credits off-balance sheet and recognize an expense equal to the fair value of the computing resources as you consume them. This expense reduces your taxable income.

Discounted Credits

If you purchase credits at a discount, record the prepaid asset at the amount you actually paid, not the face value of the credits.

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Common Mistakes to Avoid

Failing to capitalize multi-year credits. If your credits extend beyond 12 months and you are a cash basis taxpayer, or if economic performance has not occurred for accrual basis taxpayers, you cannot deduct the full amount immediately.

Not tracking credit usage. Keep detailed records of when you purchase credits, when you use them, and for what purposes. This documentation supports your tax deductions and financial statements.

Mixing personal and business usage. If you use GPU credits for both business model training and personal projects, you can only deduct the business portion.

Not adjusting for expired credits. Unused expired credits should be written off as an expense in the period they expire, not carried forward indefinitely.

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Managing GPU Credits with Accounting Software

Tools like afternoon.co can help startups track prepaid expenses, monitor credit balances, and automate the monthly recognition of computing costs. Proper tracking ensures your financial statements accurately reflect your prepaid assets and current period expenses.

By connecting your cloud provider accounts and payment systems, you can automatically categorize GPU spending and maintain audit-ready records for tax season.

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Record Keeping Requirements

The IRS requires you to maintain records that support your business deductions. For GPU cloud credits, keep:

• Purchase invoices and receipts showing the amount paid and date
• Credit balance statements from your cloud provider
• Usage reports showing when and how you consumed the credits
• Documentation linking the GPU usage to specific business activities or projects

Maintain these records for at least three years from the date you file your return, or longer if needed for other purposes.

Reference: IRS Publication 583 on Starting a Business

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Summary

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Official References

• IRS Publication 535 - Business Expenses
• IRS Publication 538 - Accounting Periods and Methods
• IRS Publication 583 - Starting a Business and Keeping Records