What is a fiscal year?
A fiscal year represents the timeframe utilized by a government to compute and monitor its financial performance, commonly from January 1 to December 31. This period encompasses government revenue, expenditure totals, and other crucial financial metrics, essential for budget decisions and long-term financial planning.
What is the difference between a fiscal year and a calendar year?
A fiscal year is a continuous twelve-month duration used for accounting and budgeting by governments and businesses, while a calendar year spans from January 1 to December 31.
Why do businesses use fiscal years rather than calendar years?
Businesses often opt for fiscal years instead of calendar years for several reasons. It facilitates the tracking of financial performance over an extended period, enabling year-to-year performance comparisons. It also aligns financial reporting with distinct accounting periods, providing ease in tracking and reporting performance. Additionally, some businesses use fiscal years to manage cash flow, staggering payments and receipts over an extended period.
What are the different types of fiscal years?
Various fiscal year types exist, with the most prevalent being the calendar year (January 1 to December 31) and the standard fiscal year, utilized to track financial performance. Other types include the modified fiscal year and fiscal year calendar.