Definition: A fiscal year is the 12-month period chosen by management to be the business’ annual accounting period. In other words, this is the period of time that a business completes a full accounting cycle from journal entries to year-end financial statements.
What Does Fiscal Year Mean?
What is the definition of fiscal year? A fiscal year does not have to follow the calendar year, however. In fact, many companies have “odd” fiscal year-ends. This is common for retail businesses with seasonal fluctuations in sales.
Let’s take a look at an example.
Example
Wal-Mart’s fiscal year, for example, starts on February 1 and ends on January 31. Many other retailers choose to shift their year-end a month later like Wal-Mart to avoid the holiday season.
Wal-Mart is extremely busy during December and the holiday season. It wouldn’t make sense for them to close their books, prepare their year-end financial statements, and file their corporate income taxes returns in the middle of their busy retail season. That’s why they wait until January to close their books and preform the rest of the year-end procedures.
This arrangement also gives investors and creditors a more accurate picture of the business. Think about how strange a retailer’s income statement would look if half of their busy sales season were reported in one year and the other half was reported in the next year. It wouldn’t make sense.
This type of FY is often called a natural business year because it follows a company’s busy and slow seasons.
Even though retailers often use non-calendar fiscal years. Most companies stick with the traditional January 1 to December 31, calendar fiscal year.
Summary Definition
Define Fiscal Year: A fiscal year is the one-year operating cycle of a business. This can coincide with the colander year, but it doesn’t have to.
