If the businesses year ends on some day other than December 31, we say that the business uses a fiscal year. How should that year be named?
Recently, I received a question from a student about the correct way to name a fiscal year. The student asked this question because of the way the fiscal years were named in a case project that was due the following week. I had never received a question like this.
Intuitively, I knew that a fiscal year is named according to the year in which the final day of the fiscal year falls. For example, if the final day of the fiscal year falls on January 1, 2022, then that fiscal year is named, “Fiscal year 2022.”
However, the authors of the case named the fiscal year according to the preceding year in which the final day of the fiscal year fell. The case showed the fiscal years ending near the last day of February, but the authors of the case named the fiscal years according to the prior year. This struck me as idiosyncratic, and I had to do some digging to see if my intuition was correct, or of the case authors were correct.
I first checked the intermediate accounting textbook that we use in the course, but the answer was not there. Then I searched online. I was surprised to see that the way to name a fiscal year did not appear on most of the sites I saw that discussed the definition of fiscal year. However, I did find three trustworthy sites that confirmed my intuition: we name a fiscal year according to the final day in which that year falls:
- Fiscal Year (FY) at Investopedia
- Understanding Fiscal Years and Fiscal Periods at UCI
- Fiscal year at AccountingTools
I did not find any sources that said that the way to name a fiscal year is to use the preceding year in which the final day of the fiscal year falls.
Lesson: always use the final day in which the fiscal year falls to name the fiscal year. Examples: