What is a fiscal year?

A fiscal year is defined as a one-year period used for financial reporting and budgeting that may not necessarily align with the calendar year, which runs from January 1 to December 31. Organizations can choose any 12-month period that fits their operational needs for financial reporting, allowing them to better match the timing of their revenues and expenses.

This flexibility allows businesses to select a fiscal year that coincides with their peak business activity or other relevant operational cycles. For example, a company whose operations peak during the summer months might choose a fiscal year running from July 1 to June 30.

In contrast, a calendar year is fixed and may not fit well with a company’s unique sales cycles or industry practices, which could lead to less meaningful reporting in terms of financial performance. The other options do not accurately capture this aspect of a fiscal year, as they either suggest a fixed annual period or an incorrect duration.