What is Fiscal Year End?

What is a Fiscal Year?

Every business has a fiscal year. A fiscal year is 12-month period used by the companies for accounting purposes. It does not necessarily coincide with the calendar year (which runs from January 1 to December 31) but can be any 12-month period chosen by the organization. The fiscal year is important for accounting purposes because it is used to prepare annual financial statements and reports.

Why do we need a fiscal year?

• Choice of Period: Organizations can choose their fiscal year period based on their operational needs, industry practices, or tax considerations. For example, a company might choose a fiscal year that ends on June 30, September 30, or any other date.

• Financial Reporting: Annual reports, budgets, and financial statements are prepared based on the fiscal year, which helps in comparing financial performance over time and making informed business decisions.

• Tax Reporting: Fiscal years are crucial for tax reporting purposes. They allow governments to collect taxes in a structured way and for businesses to file their tax returns accurately.

Fiscal Year End

Fiscal Year End is the date that marks the conclusion of a company's fiscal year. This is the point at which the annual accounting period ends, and it is used for financial reporting and tax purposes. The fiscal year is expressed by stating the year-end date. A fiscal year-end can be the end of any quarter — March 31, June 30, September 30, or December 31.

Closing entries are made at the end of the fiscal year end that concludes the period in preparation of the next fiscal year.

Closing Entries

Closing journal entries are made at the end of an accounting period to prepare income statement accounts for the next period.

This is because income statement accounts are measured periodically, so the amounts in one accounting period should be closed or brought to zero so that they won’t get mixed with those of the next period.

Note: This process is called Fiscal Year End in Xoro

Income Statement accounts consist of all revenue and expense accounts. Take note that closing entries are prepared only for temporary/income statement accounts. Permanent accounts are never closed.