In the world of business, there are two types of years, which are the calendar year and the fiscal year. You may have heard of the latter quite often if you run a business. However, do you know what does it mean and the differences between the calendar year and the fiscal year? Both of them last for twelve consecutive months (or 365 days). The only difference is that a calendar year will begin from 1st January and end on 31st December. As against, a fiscal year starts on any day of a year, and it will end on the 356th day from the starting date.
A calendar year is a year that starts on the first day of the year and finishes on the day before the next new year starts. Thus, companies that prepare their financial statements and financial reports based on the calendar year will record the business transactions starting from 1st January. Then, they will include the transactions that take place during the year until the 365th day, that is 31st December (Also see How Do Accountants Record Transactions?).
In contrast, a fiscal year is a year that can start on any date given that it ends on the 365th day from the starting date. It is a period of time that lasts for a year, where the companies may use it for accounting and financial reporting purposes. Companies that use the fiscal year will perform financial reporting, tax filings and audits based on the fiscal year.
Countries, organisations, entities and companies may choose a different starting and ending date for their fiscal years. They should select the dates based on their respective accounting requirements and audit practices. Business owners should choose the fiscal year based on the specific nature of that business. As an instance, non-profit organisations may choose the dates of their fiscal years based on the timing they will receive government grants.
When business owners are deciding whether they should use a calendar year or a fiscal year, they need to consider the specific nature of their business as well as their revenue cycle. After they make their decision, they can hire an accounting firm in Johor Bahru and hand the accounting-related tasks over to the professional accountants. Doing so enables them to focus on their core business activities without having to worry too much about the accuracy of the financial statements and whether the way they prepare them complies with applicable standards (Also see Accounting Standards in Malaysia).