A fiscal year is a 12-month period used by organizations for accounting and financial reporting purposes. It does not necessarily coincide with the calendar year and can start on any date chosen by the organization.
5 Must Know Facts For Your Next Test
The fiscal year can start on any date, such as July 1 or October 1, rather than January 1.
Adjusting entries are made at the end of the fiscal year to ensure that revenues and expenses are recorded in the correct period.
Companies choose a fiscal year that aligns with their business cycles to better reflect their financial performance.
Fiscal years are crucial for preparing accurate financial statements like income statements and balance sheets.
Public companies often follow a fiscal year ending on December 31 to align with calendar-year reporting requirements.
Review Questions
What is the purpose of a fiscal year in accounting?
Why might a company choose a fiscal year that does not align with the calendar year?
How do adjusting entries relate to the end of a fiscal year?
Related terms
Calendar Year: A period from January 1 to December 31 used for most personal tax and some business purposes.
Adjusting Entries: Journal entries made at the end of an accounting period to allocate income and expenditures to the correct period.
Financial Statements: Formal records of the financial activities and position of a business, person, or other entity.