Level: Beginner
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Definition of fiscal year (FY)?
From the point of view of tax legislation and accounting, a fiscal year definition is understood as the period for which accounting and financial statements on the results of activities of business entities are compiled and submitted to the supervisory authorities.
The start and the end of the fiscal year are defined differently depending on the country. For example, in the UK and Canada, FY lasts from April 1 to March 31, in Australia and New Zealand — from July 1 to June 30, in the United States — from October 1 to September 30, in Nepal — from July 16 to June 15 and so on. In India, the government’s fiscal year runs from April 1 to March 31 of the following year, while in countries like Indonesia, Brazil and Turkey the fiscal year coincides with the calendar year. In all cases, however, the definition of fiscal year entails a 12-months span.
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Importance of fiscal year (FY)
Knowing and understanding the features of what is fiscal year is a mandatory requirement for specialists from various corporations, as well as their investors. The main reason is that it allows you to measure economic performance in detail and compare results with previous years in order to conduct analytics and compare the quality of activity.
In the United States, the concept of the fiscal year was introduced in 1842, albeit with different dates. But the most ancient fiscal year tradition may have started in India in the 16th century, when the finance minister of the Mughal Empire under Emperor Akbar ordered to collect annual revenue on the first day of the Baisakh, which usually coincides with April 14th or 15th. And if the organization operates as a non-commercial, then the fiscal year can last from July 1 to June 30 — the main reason is that such companies usually match FYs with grant dates.
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Tax requirements for fiscal years
In countries where fiscal and calendar years do not coincide, taxpayers often have problems with the taxation system because it is based on the classical calendar year. And if the company cycle is different from it, then customers will have to make some adjustments.
What is an example of a fiscal year?
We’ve provided examples of the fiscal year structure that’s different from the calendar year above. Besides different governments all over the world, technology companies typically set a fiscal year from July 1 to June 30 because they see the highest percentage of sales in the first months of the year. Otherwise, companies may change the standard fiscal year dates to more appropriate dates for their own reasons, and close the end of fiscal year at their specific time.
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Why use a fiscal year instead of a calendar year?
If many people run into problems due to the discrepancy between the dates of the calendar and fiscal years, then why not use the same dates for both concepts? There is a pretty good reason for this fiscal year meaning, too.Some companies find it quite beneficial that for them a fiscal year means a non-standard cycle, and some organizations can better track the results of their activities or calculate income/expenses more accurately using other dates. For example, December and January are the winter holiday season, so some companies put January 31 as the end of the fiscal year due to more sales during this period.
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