What is a fiscal year?

A fiscal year is a 12-month period used by governments, businesses, and organizations for financial reporting and budgeting. 

While the calendar year runs from January 1 to December 31, a fiscal year’s start and end dates are chosen. Many organizations choose to have their fiscal year align with the natural cycle of their business operations or industry.

For example, many government and educational institutions set their fiscal year dates from July 1 to June 30. On the other hand, the US federal government’s dates run from October 1 to September 30. The choice of a fiscal year’s dates is influenced by various factors, such as seasonality, industry practices, and tax considerations.

NOTE
Once an organization selects a fiscal year, it must consistently use that same period for financial reporting and budgeting purposes, unless there is a valid reason for changing it.

Frequently asked questions

Why do organizations use fiscal years instead of calendar years?

Organizations use fiscal years instead of calendar years when it better aligns their financial reporting and budgeting with their operational cycles or industry practices. 

By doing this, they provide a more accurate representation of their financial performance and position. It also helps manage budgets and cash flows.

Can a fiscal year be shorter or longer than 12 months?

A fiscal year may be shorter or longer than 12 months in certain situations, such as when an organization changes its fiscal year dates or during the initial year of operations. 

How can an organization change its fiscal year?

An organization can change its fiscal year, but it typically requires a valid reason, such as a significant change in business operations or regulatory requirements. 

Changing a fiscal year may require getting approval from relevant authorities, such as regulatory bodies or tax agencies, and making proper accounting and reporting adjustments.