Difference Between the Calendar Year vs Fiscal Year
Mostly the Company’s financial statements are prepared for 1 year period, although the dates might change according to the organization and also depend on the country to country. In the corporate world, there are 2 types of years, the first one is a fiscal year and the second is the calendar year. To get a clear picture, let’s discuss the difference between the Calendar Year vs Fiscal Year
What is the Fiscal Year?
It is used by companies, government bodies, educational institutions, etc. for accounting, reporting, and budgeting purposes. The fiscal year is a period of 1 year period which ends on the last day of any month. The fiscal year cover consecutive 12 months, For instance, a fiscal year can start from 1st April and it ends on 31st March of next year. (Example – if a fiscal year of a firm starts from 1st April 2019 that will end after 12 consecutive months, that is on 31st March 2020. All fiscal year does not match the calendar year. If a company wants to follow a different fiscal year, they need to submit a request to the IRS (Internal Revenue Service) and tell the genuine reason why they want to adopt a different fiscal year. Where IRS (IRS) applies specific requirements on those companies that want to use a different fiscal year.
What is the Calendar year?
A Calendar year is a normal year with 12 Months period that starts from 1st January to 31st December. Many entities adopt the calendar year for their financial reporting and calculations. (Example –if a firm uses calendar year and refers to its financial reporting for the year 2019 this means the profit/losses is for the period of 1st January 2019 to 31st December 2019). The firm that uses the calendar year for the annual reporting will specifically mention the start and end date in the income statement if any entity doesn’t indicate which year they are using, then it will be assumed that they are using the calendar year for reporting. The calendar also is known as a civil year and it consists of 365 days in a normal year and 366 days in a leap year. The Gregorian calendar is the basis of the calendar year and the same calendar is used on the globe. Amazon and Facebook are examples of some Giant Companies that are following calendar years as their fiscal year.
Head to Head Comparison Between the Calendar year vs Fiscal year (Infographics)
Below are the top 6 differences between the Calendar Year vs Fiscal Year:
Key Differences between the Calendar year vs Fiscal year
Let us discuss some of the major key differences between the Calendar Year vs Fiscal Year:
- The Calendar year, as the name itself, indicates that it is based on the normal calendar followed across the globe that is the Gregorian calendar, whereas the fiscal year can start from any day of the month but ends after 12 consecutive 12 months.
- The fiscal year used by the business to prepare its business accounting, financial reporting, and easy tax reporting, whereas the calendar year is useful in normal life undertakings.
- A fiscal year can begin from any day of the year but it should follow the rule of continuous 12 months from the start date (Example- 1st April 2019 to 31st March 2020), whereas the calendar year period will be the same for everybody which starts from 1st January to 31 December).
- For tax reporting purposes, the fiscal year is more suitable, if the business cycle splits into two calendar years, hence this type of company should adapt the fiscal year for a proper match of income and expenditure for better tax reporting. Where tax reporting in the case of the calendar year is very simple.
- In the case of MNCs, companies have a presence in multiple countries, hence the company needs to follow two different fiscal years and managing accounts is very time-consuming and it also increases the operational cost of the business. There is no such case in the case of the calendar year.
- It is very difficult to compare the financial data of two companies having two different fiscal years. While in the case of the calendar year it is easy to compare the finances of two companies.
- If any business wants to adopt a different fiscal year, it would require special permission from the IRS (Internal Revenue Service). Management needs to submit a petition and need to convince the IRS by telling them about the purpose to adopt different fiscal years.
The calendar year vs Fiscal year Comparison Table
Let’s discuss the top comparison between the Calendar Year vs Fiscal Year:
| Basis of comparison | Fiscal Year | Calendar Year |
| Meaning | The fiscal year is a period of consecutive 12 Months, where businesses can choose their start date as per their preference. | It is fix time period of consecutive 365 days based on the Gregorian calendar, which starts from 1st January to 31st December |
| Relevance | It is used by businesses to prepare their business accounting, financial reporting, and tax reporting | It is useful in a normal life undertaking. |
| Period | It can begin from any day of the year but it should follow the consecutive 12 Months from the start date. (ex. 1st April 2019 to 31st March 2020) | It begins from 1st January to 31st March |
| Tax Reporting | It is complicated as compared to the calendar year. | The calendar year tax reporting is very simple. |
| MNC’s Financials | In the case of MNC, it is very time-consuming and also increases the operational cost of the business. | It is simple in the case of the calendar year reporting. |
| Comparison of Financials | A comparison between the two companies’ finances is difficult if they follow different fiscal years. | It is easy to compare the finances of two companies in the case of the calendar year. |
Conclusion
- We have gone through major differences between the calendar year and fiscal year. So what would be the right option fiscal year or calendar year? Which is totally depends on the geographical location of the company, its sectors, and government regulations.
- Businesses should choose which is appropriate for business accounting. Like, if a company incurred expenses from September to December and Generate its revenue from January to March, which means that its financial splits into two calendars. Hence the fiscal year will be a better option for this kind of company.
- The calendar year is favorable for the companies whose business cycle is complete in a calendar year. Like if you want to compare companies following the calendar year and with the company following a different fiscal year then there is a process known as Calendarization. In this process, companies need to convert their financials of the fiscal year Company to that of the calendar year.
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