A fiscal year (or financial year, or occasionally budget year) is used in government accounting and budgeting, which differs by country. Corporations and other organizations also use it for financial reporting.
Many countries require companies’ yearly financial reports to be made and released, although the reporting period does not coincide with the calendar year (January 1 to December 31).
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Taxation regulations generally mandate the maintenance of accounting records and the calculation of taxes on an annual basis, which usually corresponds to the fiscal year used for government purposes.
Annual tax computation is significant for direct taxes such as income tax. Many yearly government costs are imposed on a fiscal year basis, such as council tax and license fees, but others are charged annually.
DIFFERENCE BETWEEN FISCAL YEAR AND CALENDAR YEAR
A calendar year runs from January 1 to December 31 every year. On the other hand, a fiscal year can begin and conclude throughout the year as long as it is a full 12 months. A calendar year firm begins its fiscal year on January 1 and concludes on December 31. In the corporate sector, the calendar year is the most frequent fiscal year.
The calendar year is used as the fiscal year by large corporations such as Google’s parent firm Alphabet, Amazon, and Facebook. Other businesses choose to keep a fiscal year. For example, Walmart and Target have fiscal years that do not correspond to the calendar year.
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ADJUSTING ENTRY END OF FISCAL YEAR
After each fiscal period, adjusting entries is necessary to align revenues and costs to the “correct” period using the accounting matching concept. Adjusting journal entries are classified into two types: accruals and deferrals. Before financial statements are issued, adjusting entries are recorded.
THE TWO PRIMARY CATEGORIES IN WHICH CHANGES OCCUR ARE
- Accruals are revenues or costs incurred that have not yet been recognized.
- Deferrals are receipts of assets or cash payments made before revenue or expenditure recognition.