Fiscal year

3 key takeaways

• A fiscal year is a 12-month period used for budgeting, financial reporting, and tax purposes.
• It can differ from the calendar year, depending on the country or organization’s specific accounting practices.
• Companies and governments use the fiscal year to prepare annual financial statements and assess financial performance.

What is a fiscal year?

A fiscal year, or financial year, is a period used by governments and businesses to track and report their financial performance. Unlike the calendar year, which runs from January 1 to December 31, a fiscal year can start and end on any dates chosen by the entity, as long as it covers a 12-month period. The purpose of the fiscal year is to standardize financial reporting and comparison, budgeting, and tax assessment.

Importance of the fiscal year

Financial reporting: Organizations prepare their annual financial statements, including income statements, balance sheets, and cash flow statements, based on the fiscal year. These statements provide a comprehensive overview of the organization’s financial performance and position over the period.

Budgeting and planning: The fiscal year serves as the basis for creating annual budgets and financial plans. Organizations use these budgets to allocate resources, set financial goals, and monitor progress throughout the year.

Tax purposes: Governments use the fiscal year to assess and collect taxes from businesses and individuals. By standardizing the period over which income and expenses are measured, tax authorities can ensure consistency and fairness in tax reporting and collection.

Variations in fiscal years

The start and end dates of the fiscal year can vary significantly across different countries and organizations:

United States: The federal government’s fiscal year runs from October 1 to September 30. Many businesses in the US follow this same period, although some may choose a different fiscal year based on their operational needs.

United Kingdom: The UK government’s financial year runs from April 1 to March 31. Companies in the UK can choose their financial year, but many align it with the government’s fiscal year for consistency.

Australia: The financial year for the Australian government and most businesses runs from July 1 to June 30.

Organizations may choose a different fiscal year based on factors such as the nature of their business, industry practices, or the timing of their busiest periods. For example, retailers might choose a fiscal year that ends after the holiday shopping season to simplify accounting.

Fiscal year-end activities

At the end of the fiscal year, organizations undertake several important activities:

Closing accounts: Companies close their accounting books for the year, ensuring that all transactions are recorded and reconciled.

Auditing: Many organizations undergo external audits to verify the accuracy and completeness of their financial statements. Auditors review the financial records and provide an opinion on their reliability.

Financial reporting: Organizations prepare and publish their annual financial statements, which are used by stakeholders such as investors, creditors, and regulators to assess the organization’s performance and financial health.

Tax filing: Businesses and individuals file their tax returns based on the income and expenses reported during the fiscal year. This ensures compliance with tax laws and regulations.

Related topics

To further understand the concept and implications of a fiscal year, consider exploring these related topics:

• Financial Reporting: An overview of the process and standards used to prepare financial statements.
• Budgeting and Forecasting: Techniques for planning and managing an organization’s finances.
• Tax Accounting: Understanding how taxes are calculated and reported based on financial performance.
• Auditing: The process of examining financial statements to ensure accuracy and compliance.

The fiscal year is a fundamental concept in accounting and finance, providing a standardized period for reporting and assessing financial performance. Exploring these related topics can provide a deeper understanding of how organizations manage and report their financial activities.