Fiscal year facts for kids
A fiscal year is a special 12-month period that organizations use to plan their money. It's like a financial calendar for a business, government, or school. This period helps them keep track of their income (money coming in) and expenses (money going out). It's not always the same as the regular calendar year, which runs from January 1st to December 31st. In places like North America, it's also known as a financial year.
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What is a Fiscal Year?
A fiscal year is a continuous 12-month period that companies, governments, and other organizations use for their financial reporting. Think of it as their accounting year. It helps them organize their budgets, taxes, and financial statements. This specific time frame allows them to compare their financial performance from one year to the next.
Why Do Organizations Use Them?
Organizations use fiscal years for several important reasons:
- Budgeting: It helps them plan how much money they expect to earn and spend over the next 12 months.
- Taxation: Governments often require businesses to report their income and pay taxes based on a fiscal year.
- Performance Tracking: It allows them to see how well they are doing financially over a consistent period. They can compare this year's performance to last year's.
- Seasonal Business: Some businesses have busy seasons. A fiscal year can be chosen to end after their busiest period, making their financial reports more accurate. For example, a retail store might end its fiscal year in January, after the busy holiday shopping season.
How Does It Differ from a Calendar Year?
A calendar year always starts on January 1st and ends on December 31st. A fiscal year, however, can start on any day of the year and run for 12 consecutive months.
- Calendar Year: January 1st to December 31st.
- Fiscal Year: Can be, for example, July 1st to June 30th, or October 1st to September 30th.
Examples of Fiscal Year Starts
Many governments and large organizations choose different fiscal year start dates:
- United States Government: The U.S. federal government's fiscal year starts on October 1st and ends on September 30th of the following year. So, Fiscal Year 2024 would run from October 1, 2023, to September 30, 2024.
- Many Businesses: Many companies use the calendar year as their fiscal year. This is often simpler for them.
- Schools and Universities: Their fiscal years often align with the academic year. For example, a school's fiscal year might run from July 1st to June 30th. This makes sense because their main activities and funding cycles follow the school year.
- Other Countries: Different countries have different standard fiscal year start dates. For example, the United Kingdom's fiscal year for tax purposes starts on April 6th.
Who Uses Fiscal Years?
Almost every type of organization uses a fiscal year to manage its money.
- Governments: National, state, and local governments use fiscal years to create their budgets. These budgets decide how much money will be spent on things like roads, schools, healthcare, and defense.
- Businesses: Companies of all sizes, from small shops to huge corporations, use fiscal years for their accounting and financial reporting. This helps them understand their profits and losses.
- Non-profit Organizations: Charities, foundations, and other non-profit groups also use fiscal years to manage their funds and report to their donors.
- Educational Institutions: Schools, colleges, and universities use fiscal years to plan their spending on teachers, facilities, and programs.
The Importance of Fiscal Planning
Understanding the fiscal year helps people make smart financial decisions. For governments, it means deciding how much money to collect in taxes and how to spend it on public services. For businesses, it means planning for growth, managing costs, and making sure they have enough money to operate. For you, knowing about fiscal years can help you understand news about government budgets or company earnings reports.
See also
In Spanish: Año fiscal para niños
