Need to Change your Fiscal Year?
A fiscal year, financial year, or sometimes a budget year, is a period used for calculating annual ("yearly") financial statements in businesses and other organizations. All businesses must have a tax year for accounting purposes, but that tax year does not need to align with the calendar year. In fact, many businesses instead choose a fiscal year that starts in the middle of the calendar year. While choosing a fiscal year can be a difficult decision for a corporation, many businesses, and in particular small businesses, use a calendar year by default. It is important to know whether choosing a fiscal year for one's business is an option, and if so, what are the crucial considerations?
Calendar Accounting Year
ē Using a calendar year is straightforward: when a business selects a calendar year for accounting purposes, rather than a fiscal year, the accounting year of the business runs from Jan. 1 through Dec. 31. This means that financial reports are published and taxes are paid based on what happens during a regular calendar year, much as an individual generally pays taxes based on income earned from Jan. 1 through Dec. 31.
Fiscal Accounting Year
ē When a business decides to use a fiscal year instead of the calendar year, it must choose a particular date for that year to begin and end. For example, many businesses use a fiscal year that begins on July 1 and ends on June 30 of the following year. Businesses wanting to switch from a calendar year to a fiscal year method must get permission from the Internal Revenue Service to make such a change; the IRS will ask the business to demonstrate that the change is not being contemplated to help the business avoid taxes.
When a business decides to change their fiscal year they often find the task overwhelming because unlocking the fiscal calendar and resetting GL balances for new fiscal year start is very time consuming. It requires the creation of a new company.
Cougar Mountain Software offers their clients the service option of unlocking their fiscal calendar and resetting General Ledger balances for the new fiscal year start. Cougar Mountain provides a Statement of Work outlining the work desired so the client knows exactly what changes will be provided. Once agreed upon the client simply provides Cougar Mountain backups of their company data and Cougar Mountain does the rest.
Tags: fiscal year, financial year, financial statements, year end change
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