Updated July 25, 2023
Difference Between the Calendar Year vs Fiscal Year
Mostly the Company’s financial statements are prepared for 1 year, although the dates might change according to the organization and also depend on country to country. In the corporate world, there are 2 types of years, the first one is a fiscal year, and the second is a 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 covers 12 consecutive months, For instance, a fiscal year can start on the 1st of April and ends on the 31st of March of the next year. (Example – if a firm’s fiscal year starts from 1st April 2019 and ends after 12 consecutive months, that is on 31st March 2020. All fiscal year does not match the calendar year. Suppose a company wants to follow a different fiscal year.
In that case, 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 are from 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, it will be assumed that they are using the calendar year for reporting.
The calendar is also known as a civil year, consisting 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 follow 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. In contrast, the fiscal year can start on any day of the month but ends after 12 consecutive 12 months.
- The business uses the fiscal year to prepare its 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). In contrast, the calendar year period will be the same for everybody from 1st January to 31 December).
- The fiscal year is more suitable for tax reporting 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 increases the business’s operational cost. There is no such case in the case of the calendar year.
- It is very difficult to compare the financial data of two companies with different fiscal years. While in the case of the calendar year, it is easy to compare the finances of two companies.
- Any business wanting to adopt a different fiscal year would require special permission from the IRS (Internal Revenue Service). Management must submit a petition and convince the IRS by telling them about adopting 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 12 consecutive months, and businesses can choose their start date as per their preference.||It is a fixed time period of 365 consecutive 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 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.|
- We have gone through major differences between the calendar and fiscal years. So what would be the right option fiscal year or calendar year? It depends on the company’s geographical location, sectors, and government regulations.
- Businesses should choose which is appropriate for business accounting. For example, if a company incurs expenses from September to December and Generates revenue from January to March, 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 companies whose business cycle is complete in a calendar year. If you want to compare companies following the calendar year and the company following a different fiscal year, 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.
This is a guide to the Calendar Year vs Fiscal Year. Here we discuss the Calendar Year vs Fiscal Year key differences with infographics and a comparison table. You can also go through our other suggested articles to learn more –