Fiscal Year Meaning
A Fiscal year (FY) is an accounting or taxation period comprising 12 consecutive months. The fiscal year can begin on any day of the year but will end exactly 365 days later. It is not bound by the calendar year that begins on January 01 and ends on December 31.
The fiscal year is marked and recognized by the year on which it ends. So, if a business follows the April to March financial cycle, then for the financial year 2022, the fiscal year begins on April 01, 2021, and ends on March 31, 2022.
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- A fiscal year (FY) is simply the duration for which the government lays out the budget. FY is the period organizations use for recording their business activities, income, and expenses. It has a time frame of 365 days, 12 months, or 52/53 weeks.
- FY may not end in the same year in which it started. Further, it is recognized by the year of its closing date.
- The Internal Revenue Service (IRS) states that the companies should consider calendar years for accounting; however, firms usually take up different FYs.
Fiscal Year Explained
The fiscal year (FY) is a period used for recording and reporting business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements. within 365 days, 52/53 weeks, or 12 months. It may or may not end in the same year. However, an FY is significantly different from a calendar year. The calendar year is a fixed tenure of 12 months which begins on January 01 every year and ends on the last day of December. Also, using FY for accounting and auditing purposes is a complex affair. Whereas, calendar year simplifies accountingAccountingAccounting is the process of processing and recording financial information on behalf of a business, and it serves as the foundation for all subsequent financial statements..
Further, there is no difference between the FY and financial year. As per US laws, the financial year is also an accounting period for businesses. The tax year refers to the period for which the business entity evaluates its taxable incomeTaxable IncomeThe taxable income formula calculates the total income taxable under the income tax. It differs based on whether you are calculating the taxable income for an individual or a business corporation. by recording the income and expensesExpensesAn expense is a cost incurred in completing any transaction by an organization, leading to either revenue generation creation of the asset, change in liability, or raising capital. of the business. Although the Internal Revenue Service (IRS) prescribes the firms to take the calendar year as the tax year, most organizations prefer FY. If firms choose FY, then they need to follow the IRS guidelines. The IRS requires firms to file their tax returns by the mid of the fourth month) from the closing date of their FY.
#1 – Fiscal Period
The fiscal period refers to the fragmentation of the FY, whether monthly, quarterly, or semi-annually. There can be up to 15 fiscal periods in a particular FY; 12 of these denote respective months. The remaining are special time frames; these include opening balance, contracts, grants, and inceptions carried over from the previous FY. Thus, a company can have 2, 4, 12, or 15 fiscal periods in each accounting year.
#2 – Federal Fiscal Year
For the government, the FY is the period for which the federal budget is prepared. A budget often accounts for future revenuesRevenuesRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions. and expenditures, and therefore, is devised for the upcoming FY.
Across different countries, the FY may not necessarily mean the same period. For instance, in the US, FY 2022 denotes the period between October 01, 2021, and September 30, 2022. Whereas in France, it is from January 01, 2021, to December 31, 2021. In India, FY 2022 denotes the period from April 01, 2021, to March 31, 2022.
#3 – Business Fiscal Year
For business entities, the FY is a duration for which they represent financial transactions in their books of accounts. Many organizations (especially small and medium enterprises) use the calendar year for accounting as they find it convenient and suitable for their business cyclesBusiness CyclesThe business cycle refers to the alternating phases of economic growth and decline.. However, many large corporations strategically take up FY for accounting. These large firms make adjustments to resolve the mismatch between the accounting periodAccounting PeriodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance. and the business cycle.
Even non-profit organizations like schools and colleges prefer FY for financial reportingFinancial ReportingFinancial reporting is a systematic process of recording and representing a company’s financial data. The reports reflect a firm’s financial health and performance in a given period. Management, investors, shareholders, financiers, government, and regulatory agencies rely on financial reports for decision-making.; their FY often starts on July 01. Alternatively, some companies choose an FY that consists only of full weeks. They end on a particular day of the week. In such cases, the length of FY is not precisely twelve months. This is why some FYs are fifty-two weeks long while others are fifty-three weeks long.
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Why do companies use different fiscal years?
The firms that opt for an unconventional FY for accounting have their reasons. The foremost aim of selecting a different FY is to go with the business cycle. Most seasonal businesses like vacation travel planners and firework companies close their books of accounts right after peak season. Such measures facilitate these firms to figure out their periodic income.
For seasonal businesses taking up a calendar year may result in uneven distribution of revenue across consecutive accounting periods. Following a calendar year for reporting may even deprive the firm of tax benefitsTax BenefitsTax benefits refer to the credit that a business receives on its tax liability for complying with a norm proposed by the government. The advantage is either credited back to the company after paying its regular taxation amount or deducted when paying the tax liability in the first place.. Some small businesses go with an FY that has minimal rush with the accounting professionals and auditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.. This way, they get considerable discounts from these accounting and auditing firms.
Fiscal Year Examples
Consider the following examples of the fiscal year.
#1 – Nike Inc.
Sports footwear and apparel brand Nike’s FY 2022 starts on June 01, 2021, and ends on May 31, 2022.
#2 – JPMorgan Chase & Co.
Financial services company, JPMorgan, follows the calendar year for reporting its annual business transactions. Thus, their FY 2021 is between January 01, 2021, and December 31, 2021.
#3 – Capri Holdings Limited
Fashion luxury group, Capri Holdings, follows an FY of 52/53 weeks, ending on the last Saturday. The company’s FY 2021 ended on March 27, 2021.
#4 – Adtalem Global Education Inc.
This company has an FY that ends on June 30 every year. The FY 2021 set forth on July 01, 2020, and ended on June 30, 2021.
Frequently Asked Questions (FAQs)
A fiscal year (FY) is a convenient 12 months or 52 weeks period. Government and companies develop annual budgets or financial accounts using that time reference. It does not necessarily begin on the first day of January or end on the last day of December every year.
An FY is a specific accounting term that does not necessarily start on January 01 of a year or end on December 31. It can begin anytime as long it is a continuous period of twelve months. Also, it varies from country to country. The calendar year, on the other hand, always begins on January 01 and ends on December 31. Therefore, across countries, the calendar year refers to the same standard timeframe.
The current FY 2022 is between April 01, 2021, and March 31, 2022.
This article has been a guide to Fiscal Year and its Meaning. Here we discuss why companies use different fiscal years along with detailed explanations and examples. You may learn more about accounting from the following articles –