Functional classification of software In order to systematise the manifold manifestations of software, a classification according to their function makes sense. In the first step, a distinction is regularly made between system software and application software.

Further functional breakdowns are shown below:

System Software The system software (also basic software), whose essential part is the operating system, forms the link between hardware and application software. It manages user jobs, resources and databases. Within the system software, a distinction is made between control programs and work programs. Control programs are at the heart of an operating system and are responsible for controlling and monitoring all programs. In addition, they handle the control of peripheral devices, the cataloging of
stored files as well as the organization of data access and data security. The work programs distinguish between utilities that handle routine work using a computer system and translation programs that allow communication between the user of the system and the data processing system. The system software was bundled with the hardware at the beginning of the software development without calculation.

Already in the late sixties, however, in the US, the tendency emerged to provide operating systems separately (unbundling) against collection of a license fee. In Europe, the establishment of personal computers developed a market for system software only in the eighties. Reasons for the separation of hardware and system software were not only the price-political possibilities of the individual marketing but also technical advantages: The separate delivery of operating systems allows new developments be picked up in the software area and installed in the form of an update without having to replace the hardware. In the meantime, system software is being treated as an independent asset, both technically and economically.

As the market for system software has become increasingly independent, the question of the accounting treatment of software has become increasingly important. Before the International Business Machines Corporation (IBM) established the unbundling, the supplied software was assigned to the hardware, which is why no special accounting issues arose.

Application software Application software refers to those programs that the user uses to handle a specific problem. Hardware and system software form the infrastructure for the use of the application software. Within the application software a distinction is made between standard software and
individual software. Standard software Standard software is designed for homogeneous functional areas and objectives of specific user groups.

It is typically shipped without source code and can be used by a variety of users without significant changes or adjustments. From the manufacturer’s point of view, this means that standard software can be sold in any quantity and the development costs are distributed in large numbers. Since the production costs are essentially attributable to the development of the source program (first copy costs) and the subsequently incurred variable costs for the production of copies and accompanying material are comparatively low, the production of standard software is characterized by asymptotically falling unit costs. Within the standard software, a distinction is made between variable and fixed standard programs. Variable standard software means those programs that are largely standardized, but offer scope for individual adjustments. Variable standard software can also be characterized by a modular structure.

Modules describe functionally independent program blocks that can be put together in a variety of ways. Thus, the acquirer of a variable standard software from the set of offered modules can select those that he wants to use for his specific operational needs. As the number of modifications or modules added to meet company-specific needs increases, a standard variable program is gradually approaching the custom software. The selective separation of a far- reaching variable standard program from an individual program is standard program of an individual program is usually not possible due to this fluid transition.