Financial Year

A financial year, or a fiscal year, is a 12-month period which is utilized by organizations to record their financial standing and prepare financial statements. Unlike the calendar year that begins on January 1st and ends on December 31st, the financial year can start and finish on any date set by the institution, depending on its working routines and reporting needs. The financial year offers organizations the convenience of recording revenue, expenses, assets and debt on a constant basis for budgeting, planning, taxation and regulatory compliance purposes. It gives stakeholders, including investors, creditors, and government agencies, a uniform framework to assess the financial condition and performance of the organisation.

Example of Financial Year

Let's take for example a retail chain, Fashion Emporium, whose financial years starts on February 1st and ends on January 31st of the following year. Fashion Emporium monitors the sales revenue, operating expenses, inventory levels and other financial metrics while running the business to evaluate results and make strategic decisions. Towards the end of each financial year, Fashion Emporium prepares financial statements that include income statements, balance sheets and cash flow statements, to summarise its financial activities and results. These financial statements are very important because they give stakeholders, like shareholders, lenders and regulators, information on which profitability, liquidity and solvency of Fashion Emporium is based. The financial reporting of Fashion Emporium is aligned with the selected financial year, thus ensuring consistency, comparability and meeting the accounting standards and regulatory requirements.