What is 'Fiscal year'

Fiscal Year
Introduction
Companies and Business organizations are required to file financial statements every year in order to report the overall performance of the firms. The deadlines and settlements need not necessarily follow the calendar year. It can be adjusted according to the functioning of every organization. The year that a company follows to generate and file the accounting statements and analysis, is called as the fiscal year. The time period varies according to different businesses and different countries. Read on to understand the Fiscal Year definition, importance and examples better.


What is Fiscal Year?
A fiscal year is a 12-month span adopted by companies and work organizations to file, analyze and report their financial statements, budgets and goals. This time span does not have to be the typical January to December year approach. Every business has a nature of its own in revenue generation and success. It entirely depends on the operation and revenue cycle of the firm.


Usually, a financial year begins on the 1st day of the beginning month to the last day of the 12th month, for example, July 1 to June 30. Several Non-Profit Organizations use the time period between July to June as their Fiscal years. Companies might also use a 53-week cycle as a Fiscal Year period depending on time and date constraints.


It is often combined with the concerned year while reporting, for example, FY21 to denote the financial year of 2021. The Fiscal Year End, denoted as FY-End is the completion of the 12-month period of a company’s accounting process. The firm utilizes the year to track the goals regarding budgets, forecast issues or spikes in the finances and generate a detailed report, regardless of the Calendar year.


How to Calculate a Fiscal Year?
A fiscal year is calculated by considering the nature and operational activities of a business. Each business has its individual busy months. It is during these months that they generate high revenues. It is important to determine the busiest month of a business operation and end the fiscal year right after the peak of business activity is achieved. An expert consultation on the business performances and outcomes can ease the process. A fiscal year can be framed keeping these considerations in mind.


Guidelines for Fiscal Year
A Fiscal year may or may not be based on a calendar year. In some Businesses, the fiscal year coincides with the tax year, making it easy for the owners to file their taxes and accounting reports around the same time.


Tax payers of the fiscal year are required to pay their taxes on the 15th day of the fourth month after the year ends. For example, a fiscal year functioning between February 1st and January 31st will have its tax due on May 15.


A fiscal year is set after filing the first federal tax return of the Company.


In certain cases, the management might want to change the FY, owing to financial or functional reasons. In such cases, an approval from the IRS (Internal Revenue System) is mandatory.


Fiscal Year Examples
Fiscal year operates differently depending on the countries where the firm runs and the nature of the firm. In the US, most fiscal years operate between the 1st of October to the 30th of September. Whereas, the Australian firms consider the duration between July 1 and June 30 as their fiscal year. The fiscal year in Vietnam and China is from the 1st Jan to 31st December. In some countries, businesses operating around schools, have their fiscal year from April to March when the schools are closed for summer.


Importance of Fiscal Year

• A fiscal year allows an establishment to understand the business operation from time to time.
• It serves as a timeline to analyze financial documents.
• The strengths and weaknesses of a business can be evaluated and documented using the time frame.
• It can spare huge accounting fees and auditing costs from being spent externally.
• The time frame mostly aligns with the deadline of taxpayers to settle their dues. So, it is not necessary to undertake double works on filing.
• A fiscal year provides a stipulated time to determine and keep track of the revenues and expenses of a business.
• According to the Securities and Exchange Commission (SEC), every organization is mandated to publish accounting and other financial statements concerning the business.

Fiscal Year Vs Tax Year Vs Calendar Year

1. A calendar year is a regular Jan 1 to Dec 31 cycle of time period. The time frame is followed for any official and non-official purposes. It is not necessary for businesses to operate in the same cycle.
2. A fiscal year is the annual financial reporting month of a company. It varies from business to another depending on the operation and seasonal constraints of the business.
3. A tax year is the timeline assigned to every enterprise to submit the taxes. This may align with either the Fiscal or Calendar year based on the business.

What is the difference between financial year and a fiscal year?
The Financial and fiscal years are synonymous. They mean the twelve-month period to file accounting statements.


Why do companies use Fiscal years?
Fiscal years are used because every business operates in its own way and the performing seasons vary with every firm. A fiscal year helps in aligning the financial requirements with the business goals of the company.


What is the most common fiscal year?
The federal government of the US, typically follows the fiscal year between Oct1 and Sep 30. This is a common fiscal year in the US.


Can a company choose its own Fiscal Year?
Yes, A company has complete control in choosing its fiscal year provided the norms of IRS are met.


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