What Is Fiscal Year-End? Definition and vs. Calendar-Year End

Fiscal year and calendar year are two very important terms in finances. Any individual filing taxes requires the knowledge of the two terms - fiscal year and calendar year. Having financial knowledge always keeps us a step ahead in life.

Both the fiscal year and calendar year have 365 days. However, they are not the same thing. One cannot use fiscal year and calendar year interchangeably. Though both have 12 months, the start dates and end dates for the fiscal year and calendar year are different. In this blog, we aim to make the concepts of fiscal year and calendar year a little more clear for our readers. Read till the end for complete knowledge.

What is a fiscal year?

A fiscal year can be understood as the completion of any one-year or 365-day period in which the financial estimates and financial statements are prepared by a salaried individual or business. This means that an organization's fiscal year is different from its calendar year.

Fiscal years are used by

• 1. Employees
• 2. Non-profit organization
• 3. Government, for budgeting and accounting
• 4. Businesses

The fiscal year is important in the sense that companies and businesses are required to choose a fiscal year-end and generally, they do that at the time when they are setting up their company or business. The company then is required to hold onto it every year. This allows consistency in accounting data.

Important things to keep in mind about Fiscal Year-

• 1. Fiscal year-end marks the completion of one year, i.e. 12 months or 365 days
• 2. For a company or business whose fiscal year is the same as the calendar year, this would mean that that company's fiscal year would end on 31st December.
• 3. Companies and businesses are given the liberty to decide the fiscal year-end for themselves in best their interests.

What is a calendar year?

The fiscal year and calendar year are similar in the manner that both consist of a consecutive 365-day or 12-month period. However, both differ in the manner that while the fiscal year differs for different companies as per what suits their needs, the calendar year is the same for everyone. It starts on the 1st of January and ends on the 31st of December.

Fiscal year-end vs. Calendar year-end

As we know the fiscal year and calendar year both comprise 365 days or 12 months. Companies may choose to have the fiscal year the same as the calendar year, i.e. their fiscal year ends on 31st December.

However, most companies choose their fiscal year-end depending on the needs of the company. Let's understand this using an example. X is a company that sells winter wear. Now this company would not want its fiscal year to be the same as its calendar year. Why so? This would be because the sales of winter wear are maximum during winter. 31st December collides with this as winter is going on at that time when customers are buying winter wear on a large scale. Assuming that the company had chosen 31st December as the fiscal year-end, it might have faced problems generating the financial statements for the year and in other domains as well. Hence, the company would rather avoid these hassles and choose let's say 31st March as fiscal year-end, as by 31st March, sales of winter wear will drop.

Choosing a company's fiscal year-end is a crucial decision. This is because the company cannot be changed year to year. Once chosen, the fiscal year-end remains the same for the company. However, one must take a sharp mental note that a company's fiscal year-end does not mean that the due date on taxes will change. It is going to be the same for all.

Differences between Calendar Year and Fiscal Year

The table below shows the key differences between a calendar year and a fiscal year.

What happens at Fiscal year-end?

At fiscal year-end, the business or company is required to review its books. It has to review all the transactions made during the fiscal year, verify the data, and go through the calculations of financial data, for instance, expenditure, revenue, income, investment, and others.

How should a company choose its fiscal year-end?

A company must choose its fiscal year end by focusing on the situation at which time of the year their business will flourish the most. Those businesses that are seasonal use this method to choose their fiscal year-end. They calculate when they are going to receive maximum profits, and after that, they can set up their fiscal year-end.

The fiscal year can be understood as the completion of any one-year or 365-day period in which the financial estimates and financial statements are prepared by a salaried individual, business, or company. It differs from calendar year because calendar year is fixed for every company but fiscal year may change from company to company. We, at PensionBox hope that our readers have gained insights about fiscal year-end and calendar year-end.