Fiscal year

From Free net encyclopedia

A fiscal year or financial year is a 12-month period used for calculating annual ("yearly") financial reports in businesses and other organizations. In many jurisdictions, regulatory laws regarding accounting require such reports once per twelve months, but do not require that the twelve months constitute a calendar year (i.e. January to December).

However, a new company or business has to decide at the beginning on which month its fiscal year will start, and then (generally) stay with it. In the United States, the business' tax year is the same as its fiscal year, and must file its tax return by the 15th day of the third month following the fiscal year end (most often March 15).

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Why does the fiscal year often not match the calendar year?

Often the fiscal or tax year is specifically established not to match the calendar year so that accounting year-end work does not align with key holiday periods. In western traditions, the end of December (being also the end of the calendar year) is a time of celebration that includes such holidays as Hanukkah and Christmas and is sometimes referred to as the "holiday season" (US) or the "Christmas period". Generally, the fiscal year tends to end at a time that deliberately does not coincide with key holiday periods.

A popular use of a non-calendar year as the fiscal year involves retailers. Under the accounting principle of "matching", income and related expenses should be aligned as closely as possible within the same fiscal year. As many unwanted or defective Christmas items are returned in January, a fiscal year based on the calendar year would see sales in one year and the associated returns in the following year. Therefore, retailers commonly use a month other than December to end their fiscal year (January is a popular choice, since by month's end most returns have already taken place).

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Operation in various countries

Such fiscal years are typically numbered using a calendar year and quarter thereof. A fiscal quarter is 3 months (1/4 of a year). For example, the United States government fiscal year for 2006 ("FY06", sometimes written "FY05–06") is as follows:

1st Quarter: October 1, 2005 – December 31, 2005
2nd Quarter: January 1, 2006 – March 31, 2006
3rd Quarter: April 1, 2006 – June 30, 2006
4th Quarter: July 1, 2006 – September 30, 2006

So the U.S. government's fiscal year begins on October 1 of the previous calendar year and ends on September 30 of the year with which it is numbered. However, as stated above, the tax year for a business is governed by the fiscal year it chooses.

The Australian government's fiscal year begins on July 1 and concludes on June 30 of the following year. In Canada, the United Kingdom, India and Hong Kong, the government's financial year runs from April 1 to March 31, and corporation tax is charged by reference to that period. However, in the UK, the personal tax year (which governs liability to income tax and capital gains tax) runs from April 6 to April 5. This reflects the old ecclesiastical calendar, with New Year falling on March 25 (Lady Day), the difference between April 6 and March 25 being accounted for by the eleven days "missed out" when Great Britain converted from the Julian Calendar to the Gregorian Calendar in 1752 (the British tax authorities were unwilling to lose 11 days of tax revenue, so the 1752/3 tax year was extended by 11 days).

Companies that are units within a "group" of businesses must all use nearly the same fiscal year (differences of up to three months are permitted in most jurisdictions, such as the U.S. and Japan), with consolidating entries to adjust for transactions between units with different fiscal years, so the same resources will not be counted more than once or not at all.

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