Fiscal Year

Definition

A Fiscal Year (FY) is a continuous 12-month period that businesses and governments use for financial reporting and budgeting. Unlike the calendar year, which runs from January 1 to December 31, a fiscal year can start on any date and ends one year later. Organizations choose a fiscal year based on various factors like seasonality, operational cycles, or compliance requirements.

For example, agencies of the federal government in the United States operate on a fiscal year starting on October 1 and ending on September 30 of the following year. Fiscal Year 2017 (FY2017), therefore, spans from October 1, 2016, to September 30, 2017.

Examples

Federal Government: The U.S. federal government’s fiscal year starts on October 1 and ends on September 30. For example, FY2022 runs from October 1, 2021, to September 30, 2022.
Corporations: A company like Microsoft’s fiscal year starts on July 1 and ends on June 30. Therefore, FY2020 for Microsoft would range from July 1, 2019, to June 30, 2020.
Colleges and Universities: Many educational institutions’ fiscal years start on July 1 and end on June 30, aligning with the academic year.

Frequently Asked Questions (FAQs)

Why do businesses choose a fiscal year different from the calendar year?

Companies choose a fiscal year based on factors like seasonality in their business cycles, regulatory requirements, or operations reasons. For instance, retailers whose peak sales period is during the holiday season may prefer a fiscal year that ends in January or February.

How is a fiscal year different from a calendar year?

A calendar year is fixed and runs from January 1 to December 31. Conversely, a fiscal year can begin on any date and runs for 12 consecutive months from that start date.

How are fiscal years labeled?

Fiscal years are labeled based on the year in which they end. For example, a fiscal year that began on October 1, 2020, and ends on September 30, 2021, would be labeled as FY2021.

Can an organization change its fiscal year?

Yes, an organization can change its fiscal year, but it generally requires approval from the governing tax authority and can involve regulatory and reporting implications.

How do fiscal years contrast internationally?

Different countries and sectors may have distinct fiscal year formats. For example, the UK government’s fiscal year runs from April 1 to March 31 of the following year.

Calendar Year: The 12-month period starting January 1 and ending December 31.
Quarter: A three-month period within a fiscal year, used for financial reporting.
Budget: A plan for income and expenditures over a fiscal year.
Fiscal Policy: Government decisions on taxation and spending, based on the fiscal year framework.

Online Resources

References

U.S. Government Publishing Office, “Federal Fiscal Year,” available online: gpo.gov
IRS Publication 538, “Accounting Periods and Methods”

Suggested Books for Further Studies

“Financial Accounting: An Introduction to Concepts, Methods and Uses” by Roman L. Weil, Katherine Schipper, and Jennifer Francis
“Governmental and Nonprofit Accounting” by Robert J. Freeman
“Finance: The Basics” by Erik Banks

Real Estate Basics: Fiscal Year Fundamentals Quiz

### Which period typically signifies the U.S. federal government’s fiscal year? - [ ] January 1 to December 31 - [ ] April 1 to March 31 - [x] October 1 to September 30 - [ ] July 1 to June 30 > **Explanation:** The U.S. federal government's fiscal year starts on October 1 and ends on September 30 of the following year. ### Can a fiscal year start on any date after January 1? - [x] Yes, a fiscal year can start on any date. - [ ] No, it can only start on January 1. - [ ] Yes, but only if approved by the IRS. - [ ] No, it must start on June 30. > **Explanation:** A fiscal year can start on any date after January 1 and runs for 12 consecutive months. ### How is a fiscal year labeled? - [ ] By the year it starts - [x] By the year it ends - [ ] By the quarter it starts in - [ ] By the month it starts in > **Explanation:** Fiscal years are labeled based on the year they end. Hence, a fiscal year beginning October 1, 2020, and ending September 30, 2021, is known as FY2021. ### Why do organizations choose a fiscal year different from the calendar year? - [x] Seasonality and business operations - [ ] Regulatory restrictions - [ ] Personal preference of the CEO - [ ] Government mandate > **Explanation:** Organizations choose fiscal years based on seasonality and business operations, allowing better alignment with income and expenses. ### In which of the following scenarios might a fiscal year be especially useful? - [ ] Personal financial planning - [ ] Planning vacations - [x] Business financial reporting and budgeting - [ ] Academic scheduling > **Explanation:** Fiscal years are particularly useful for business financial reporting and budgeting purposes, to align better with their operational cycles. ### Which of the following is NOT a typical start date for a fiscal year? - [ ] July 1 - [x] December 31 - [ ] April 1 - [ ] October 1 > **Explanation:** Fiscal years typically start on the first day of a month and run for the next 12 months. December 31 is the last day of a calendar year, but not a common start for a fiscal year. ### What does the 'fiscal' part of 'fiscal year' refer to? - [ ] Seasons - [x] Finance and budgeting - [ ] Calendar dates - [ ] Academic terms > **Explanation:** The term "fiscal" refers specifically to financial matters, such as budgeting and accounting. ### Which document would outline important information about fiscal years for U.S. businesses? - [ ] College catalog - [ ] Social media guide - [ ] Travel itinerary - [x] IRS Publication 538 > **Explanation:** IRS Publication 538 contains details on accounting periods and methods related to fiscal years. ### How many quarters are there in a typical fiscal year? - [ ] Two - [ ] Six - [ ] One - [x] Four > **Explanation:** A typical fiscal year is divided into four quarters, each consisting of three months. ### What is typically aligned with fiscal years in many companies? - [ ] Employee birthdays - [ ] Seasonal festivals - [ ] Weather forecasts - [x] Financial reporting cycles > **Explanation:** Fiscal years in many companies are aligned with financial reporting cycles for better management of finances.