Fiscal Year: What It Is and Advantages Over Calendar Year
Partnerships, limited liability companies, and S corporations can use a fiscal year that is not a calendar year, as long as it meets the IRS definition of a tax year and it has approval to do so. Fiscal years are often designed to accommodate 364 days (52 weeks multiplied by seven days), leaving 1.25 days per year unused. The extra days—including leap days—are totaled up into another week which is tacked onto a future fiscal calendar every five or six years. Generally, the government releases the annual federal budget in October, ahead of the fiscal year.
- Financial year and fiscal year are terms that are often used interchangeably, but they have slightly different meanings.
- A fiscal year is a 52 or 53 week period used by governments and businesses for financial planning, scheduling, and reporting purposes.
- Improved Financial Management was part of the broader Congressional Budget Act of 1974 goal to enhance efficiency, transparency, and systematic management of federal finances.
Common Budgetary Terms Explained
A retailer might have a fiscal year consisting of the 52 or 53 weeks ending on the Saturday nearest to the first day of February. Government fiscal year structures have tangible consequences for citizens, businesses, and organizations, ranging from tax deadlines to public fund availability and new service rollouts. Government Shutdowns occur if no appropriations bills are enacted and no CR is passed by October 1 (or when CRs expire). Unfunded government portions must cease all non-essential discretionary functions, resulting in partial or full shutdowns. Educational institutions commonly use July 1 to June 30 fiscal years, perfectly aligning with academic calendars, tuition payment timing, and state education funding cycles. The calendar year is the standard 12-month period everyone knows, running from January 1 to December 31.
- The House is supposed to complete all appropriations bills by June 30, but this target is rarely met.
- Sometimes, businesses will pick a different year end when the accountants are less busy to get a lower rate.
- The Governmental Accounting Standards Board (GASB) establishes accounting and financial reporting standards—Generally Accepted Accounting Principles (GAAP)—for U.S. state and local governments.
- On the other hand, a fiscal year is a 12-month period that a government uses for budgeting and taxation purposes.
Stage 3: Finalizing Spending and Presidential Action
Fair-value accounting reflects the fact that the government’s risk of loss from defaults on loans tends to increase when the economy is weak. Current and future generations bear the costs of such losses, which can result in higher taxes, reductions in spending, or larger debt. Although FCRA accounting is required by law to be used for recording outlays in the budget, fair-value accounting can be used to analyze credit programs, insurance programs, and retirement benefits.
The Federal Government’s October Start
Tools like Ramp help automate transaction coding and sync data with your accounting system in real time, reducing close timelines and increasing reporting accuracy. Your fiscal periods also determine when key tasks happen, like budget reviews, tax estimates, and performance reporting. If you manage these periods well, you avoid rushed closes, missed deadlines, and unexpected surprises in your finances. Most businesses divide the fiscal year into 12 monthly periods or 4 quarters.
How Do Companies Choose Their Fiscal Year End?
In general, the fair-value cost that private institutions would assign to credit assistance on the basis of market prices is greater than the cost reported in the federal budget under FCRA procedures. For example, many retail companies have a fiscal year that differs from the calendar year due to the heavy sales cycle during 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. For businesses with significant seasonal variations, a fiscal year can provide more meaningful financial comparisons.
Without that justification and without IRS approval, the calendar year remains mandatory. Some businesses also define “hard closes” and “soft closes” within periods. A soft close gives you early visibility with partial data, while a hard close finalizes all entries. Most 52/53-week calendars have 52 weeks, but an extra week is added once every five or six years to keep the year-end aligned. This happens because 52 weeks only cover 364 days, leaving a one-day gap that adds up over time.
This flexibility allows organizations to align their financial cycles with their operational patterns. Using fiscal years that are separate from or organized differently than calendar years has several advantages. For the U.S. government, the fiscal year timing allows Congress to process legislation for appropriations.
Companies must prepare financial statements at the end of their financial year to assess their performance and financial health. On the other hand, governments use the fiscal year to create budgets and allocate funds for various programs and services. The reporting requirements for financial and fiscal years may vary based on the regulations and standards that apply to each entity.
This cycle is intricately linked to the federal fiscal year and involves extensive collaboration between the Executive Branch (President and Office fiscal year definition and meaning of Management and Budget) and Congress. The revenues and outlays of the Social Security trust funds and transactions of the Postal Service are classified as off-budget. Most activities for those programs are not subject to caps, sequestration, or reporting and enforcement procedures under S-PAYGO. The budget resolution (the Congress’s budget plan) generally excludes off-budget programs. Debt held by the public is the measure used most often in CBO’s reports on the budget.
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In keeping with CBO’s mandate to provide objective, impartial analysis, it makes no recommendations. We help our clients to develop and apply optimal and effective corporate solutions to optimize and improve business performance and stability. Apple, for example, ends its fiscal year on the last Saturday of September. The fiscal year of Microsoft, on the other hand, ends on the last day of June, whereas Walmart’s fiscal year finishes at the end of January. You can change your settings at any time, including withdrawing your consent, by using the toggles on the Cookie Policy, or by clicking on the manage consent button at the bottom of the screen. Quickonomics provides free access to education on economic topics to everyone around the world.