what is Fiscal Year

A fiscal year (FY) is a 12-month period used for financial planning, budgeting, and tax reporting by various entities, including companies and governments. It is distinct from the calendar year, which is the 12-month period aligned with the Earth's revolution around the sun, typically starting on January 1 and ending on December 31. The primary reasons for using a fiscal year are: 1. **Alignment with Business Cycles**: Fiscal years are often structured to align with the operational cycles of businesses, which may not coincide with the calendar year. For example, a retail business may have its busiest period during the holiday season, which falls outside the traditional calendar year-end reporting period. 2. **Tax Reporting Requirements**: Fiscal years are crucial for tax reporting purposes. Entities must file their tax returns based on their fiscal year, which can differ from the calendar year. In the United States, for instance, a business can adopt a fiscal year for tax reporting by submitting its first income tax return observing that fiscal year. 3. **Financial Reporting and Budgeting**: Fiscal years are used for preparing annual financial statements and for budgeting. They allow entities to summarize their financial activities over a consistent period, facilitating financial analysis and decision-making. In summary, while the calendar year is universally recognized, the fiscal year is a flexible and adaptive unit of time that is tailored to the specific needs of various organizations for accounting, tax reporting, and financial management purposes.