Fiscal year also known as accounting year is the completion of a one-year accounting period of an organization. Fiscal year of a company has no connection with the calendar year. A fiscal year may or may not end on December 31 of a year. Fiscal year is stated by expressing the year end date. A fiscal year end can be end date of any month during the year. As per the definition of Internal Revenue Service (IRS), a fiscal year is defined as twelve consecutive months ending on last day of any month of the year (Drury, 2011). Fiscal year should not be confused with tax year which in the USA ends on 31st December.
It is important for a company to define accounting periods clearly and remain consistent in beginning and ending it. An accounting period starts when a company begins trade or immediately after the close of the previous accounting period (Drury, 2011). An accounting period ends exactly twelve consecutive months of the start of the accounting period. An accounting period can also end when a company has closed previous accounting period and no longer trading (Drury, 2011). If a company is winding up then as soon as the winding up process starts, a company may end the accounting period. Finally, when a company changes its tax location from one country to another, then it can close the account on the last day of existence in the country (Drury, 2011). Information gathered during an accounting period is used to create both external and internal annual reports. Once the accounting period is closed annual reports are published for internal and external stakeholders. Typical end of the year reports includes the income statement, statement of cash flows and balance sheet.
References
Drury, C. (2011). Cost and Management Accounting. Cengage Brain. 7th Edition. Retrieved on 18th April, 2016 from < https://www.cengagebrain.co.nz/content/9781408049044.pdf>
