Financial Year
A financial year is a period of time used for calculating annual (yearly) financial statements in businesses and other organizations. A fiscal year may be different from a calendar year, but many businesses choose to use the calendar year as their fiscal year.
A fiscal year (FY) is a 12-month period that companies and other organizations use for accounting purposes. It’s also the time frame in which the government operates. The U.S. federal government’s fiscal year begins on October 1 and ends on September 30. This is different from the calendar year, which runs from January 1 to December 31.
Most business entities calculate their taxable income using one of two methods: the cash method or the accrual method. The main difference between these two methods is when revenue and expenses are recognized.
Under the cash method, revenue is recognized when it’s received, and expenses are recognized when they’re paid. The accrual method recognizes revenue when it’s earned, regardless of when it’s received, and recognizes expenses when they’re incurred, regardless of when they’re paid.
The main advantage of the accrual method is that it provides a more accurate picture of a company’s financial health because it records all revenues and expenses that have been incurred, even if they haven’t been paid yet.