As a business professional, you may be familiar with the legal concept of a fiscal year accounting period. This is a period of time – usually twelve months – used for accounting and tax reporting purposes. It generally doesn’t line up with the calendar year, and varies from business to business. More importantly, the period is closed out when accounting records are finalized and then opened up again for the next period.
For example, a business may use October 1st to September 30th of the following year as its fiscal year accounting period. During this period, income and expenses are tracked and recorded on separate ledgers. The date the period closes is important, as this is when total income, expenses, and profits are reported for that period. As a business owner, this is valuable to know as it serves as a snapshot of the company’s financial performance.
The advantages of using a fiscal year accounting period are numerous. By having a “closed” accounting period, it’s easier to compare the performance of the business from one year to the next. Clarity can also be found regarding whether costs are short-term or long-term expenses. In addition, any discrepancies or errors between the actual performance and the reported performance can be identified and corrected, allowing the business to streamline its financial reporting process.
Important Considerations for Fiscal Year Accounting Periods
When making the decision to implement a fiscal year accounting period, there are some important aspects to consider. First and foremost, the tax implications should be taken into account. Depending on the type of business or how the business is structured, it may be preferable to use a calendar year rather than a fiscal year. Doing so may help the business save on annual taxes, so it’s important to consult a tax expert before deciding what period is best for the company.
It’s also vital to understand the accounting principles for a fiscal year accounting period. Generally, the same principles included in a calendar year would also apply, such as the system of double-entry accounting. However, it’s important to know how a fiscal year affects the accounts, how information is formatted and presented, and which government regulations are in place at the federal, state, and local level.
Final Thoughts
Fiscal year accounting periods are an essential legal concept for business professionals to understand. Not only can they help optimize the accounting and reporting process, they can also provide valuable snapshots of the performance of the business. As always, it’s important to consult a tax professional or other financial expert to ensure that any decisions made regarding a fiscal year accounting period are in line with the law and the best interests of the business.