Financial Year

This is a year that is used by the government in budgeting and also accounts for its activities. It varies from one nation to the other, and it is also used by organizations and other entities to prepare their reports as regards finance.

In this case, if you know your financial year, you could keep better track of your money and then file your taxes accurately. Depending on the type of your business, you can possibly decide when you want your financial year to start and stop. Otherwise, generally speaking, the financial year is otherwise referred to as FY.

Below, we will discuss all about a financial year!

Understanding Financial Year Meaning

A financial year consists of twelve months, normally in the business calendar that is used in working out budgets and also not forgetting profits and losses that various businesses and governments have.

Many companies decide to end the financial year at a certain date due to some reasons. November through December is when many businesses are a busy. So, the accounts might be busy at this period. Some businesses have many holidays at a particular period of the year might decide to have a fiscal year end in September or October. So, since that''s when they''re busiest, the financial year actually becomes any twelve-month time a business desires.

Importance of Financial Year

Below mentioned are some of the top reasons why the financial year is important for everyone to know:

• The taxpayers have to pay tax on the income earned in the previous year during the assessment year.
• The country''s income and expenditure are calculated by the government based on the financial year.
• It is the phase of time when the government fixes its economic and financial targets and works out the ways to collect the money for implementation of these objectives. It is the action plan and is also known as the budget for the next year or financial year which commences from April. The government usually provides the same to the people at the ending of the preceding financial year.
• Most of the businesses follow the financial year of the government and tax department. This maintains consistency in all fields and the statistics can also be easily comparable.

Importance of Company''s Financial Year

Preparation for a Performance Review

For most business organizations, the end of a financial year also comes with the review of the work performance indicators for the employees and salary increments. If your employees know when your company''s financial year ends, they can prepare themselves for making a good impression in view of their performance review.

Assessing Job Security

Employees often wonder whether the company did well or met its targets for the financial year. If your company has done well during a financial year, your employees would feel secure about their jobs and also very positive regarding the next year.

Next Year Preparation

You could do this at the beginning of a new financial year when you announce plans and goals set for the next 12 months ahead. That way, the preparation on the side of the employees can be done in order to adapt to these changes and do better the following year.

How to Choose Your Financial Year End?

Your business''s financial year could end at any time within 53 weeks from the date that it was formed. When you file your first tax return, your fiscal year formally closes, yet the best practice is to set the closing date from the beginning of the business.

For most businesses and companies in India, the financial year falls within the period from April to March, the same period as the fiscal year for the government. However, some companies prefer a specific period. For example, Nestle India''s accounting year is from January to December, while Gillette India''s financial year ends on June 30.

There you go. Everything you need to know about the financial year.

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FAQs

Difference between assessment year and financial year?

A financial year is the period of twelve months ending on the 31st day of March following that year, over which a person earns his income for tax purposes. An assessment year is the period during which the income of the previous year is assessed and taxes are payable and ITRs filed.

How does a financial year differ from a calendar year?

The financial year begins with the 1st of January and ends with the 31st of December each year. No fixed date exists for beginning or ending the financial year.

For what reason is the financial year important to businesses and individuals?

In case it is necessary for the company to report its financial data, it will be requisite for it to know the commencement and end of the financial year. This allows for budget planning, keeping records of income and expenses, and calculating the amount of taxes it owes at the end of each year.