Fiscal year

Definition

A fiscal year, often abbreviated as “FY,” is a 12-month period that a company or organisation uses for financial reporting and planning purposes. Unlike the calendar year, which begins on January 1st and ends on December 31st, a fiscal year can start on any date and end 12 months later. The choice of when the fiscal year starts and ends is typically based on the company’s operational and reporting needs.

What is a fiscal year?

A company’s fiscal year may align with the calendar year, running from January 1st to December 31st. However, many companies choose different fiscal year start dates, such as April 1st to March 31st or July 1st to June 30th. Government entities, nonprofits, and businesses in various industries might opt for fiscal years that correspond to their specific business cycles.

The use of a fiscal year allows organisations to track financial performance, create budgets, and report results without being confined to the calendar year. This can be especially important for businesses that experience seasonal fluctuations in their operations or for those whose accounting needs differ from traditional calendar periods.

In summary, a fiscal year is a 12-month period chosen by a company or organisation for financial reporting and planning, providing flexibility to align with their operational patterns and financial requirements.

Fiscal year vs. calendar year

A fiscal year is a 12-month period used for accounting and financial reporting that does not necessarily align with the calendar year. It can start and end in any month, depending on the organisation’s needs. A calendar year, on the other hand, follows the traditional January 1 to December 31 period.

Organisations choose a fiscal year that best matches their business cycles and reporting requirements, while a calendar year is used for standard timekeeping and tax purposes.

Why use a fiscal year instead of a calendar year?

Organisations may choose to use a fiscal year instead of a calendar year for several reasons. A fiscal year can align more closely with their business cycles, allowing for better financial planning, budgeting, and reporting that reflects seasonal fluctuations or operational patterns.

It can also help stagger financial reporting periods to avoid peak workload times, especially in industries with significant year-end activities. Additionally, using a fiscal year may provide flexibility in tax planning, financial strategy, and compliance with regulatory requirements, depending on the jurisdiction and industry-specific considerations.

The choice of fiscal year versus calendar year depends on the organisation’s specific operational and reporting needs.

Example of a fiscal year

Company XYZ, a retail company, has chosen a fiscal year that runs from April 1 to March 31.

During this fiscal year, the company conducts its business operations, generates revenue, incurs expenses, and engages in financial activities. At the end of the fiscal year on March 31 the company’s financial statements are prepared to provide a summary of its financial performance and position during this period.