Fiscal year end

Fiscal year-end definition

Fiscal year-end is the date on which a company finishes a 12-month accounting period. The fiscal year may differ from the calendar year depending on the needs of the company.

Businesses normally recognize two types of years: the calendar and the fiscal. The calendar year runs from January 1 to December 31, while the fiscal year also runs for 12 months but begins at the company's chosen date.

Some businesses will choose the end of the calendar year as their fiscal year-end. Others will choose another period end such as March 31 as their date, allowing them to align with the federal government, whose fiscal year-end falls on that date.

Choosing the right date is particularly important for seasonal businesses like retail stores that do increased business around the end of the calendar year. These businesses need to concentrate on sales and production at the end of the year, not on counting inventory and finishing their accounting year-end close process.

Companies usually choose the fiscal year-end date when they are incorporating or forming their company. It is advised that they stick with that date every year so that accounting data remains consistent.

What is the fiscal year-end?

“The fiscal year-end is the finish of a company’s 12-month business cycle,” says Beth Fisher, Senior Advisor at BDC’s Business Advisory Services.

For many companies, the fiscal year differs from the calendar year and does not close on December 31. A company’s particular needs usually dictate the date they choose. A fiscal year ending on December 31 can be complicated for many businesses. Gathering financial information during a period of vacationing employees or busy holiday activities can be difficult.

There are situations where a fiscal year is less than 12 months long. One example would be if a company ends its first year of business before their chosen fiscal year-end date. Another would be if a company decides to change its fiscal year-end date.

The production of financial reports is often linked to the fiscal year-end. Different types of financial reports are prepared for various stakeholders:

  • management (for internal use)
  • external partners, such as lenders and investors
  • government (to assess how much tax you need to pay)

These fiscal year-end reports allow a company to compare results from year to year. They allow you to better understand or present your company's financial situation.

Most importantly, the fiscal year-end is the time at which you must file your taxes.

For corporations, a fiscal period cannot be longer than 53 weeks. Corporations need to file their income tax returns within six months of the end of their fiscal period. The fiscal year for sole proprietorships and partnerships is usually the calendar year.

You should avoid ending your fiscal year during a busy operating period. Ask yourself what time is best for doing year-end work.

How do you choose your fiscal year-end?

At one point, your business will need to decide on a date for your fiscal year-end.

“It’s actually part of the incorporation process,” Fisher says. “As you go through the different stages of incorporation.”

There is no definitive answer to how you choose the date for your fiscal year-end. Different companies have various reasons for selecting a particular date. However, some common factors can influence your choice:

The nature of your business and its operating cycle

If your business is seasonal or cyclical, you may choose a date that coincides with the end of your peak season. The goal is to capture the full impact of your business activities on your financial statements.

“Many businesses time their fiscal year-end with their slow period,” says Fisher. She suggests you make your choice of date an operational decision.

“You should avoid ending your fiscal year during a busy operating period. Ask yourself what time is best for doing year-end work.”

She says if you run a seasonal business, try not to have it fall on a date when you would be rushing around trying to serve your clients.

Fisher gives the example of a retail store.

“Christmas season for them is hectic. So, they may not want to have December 31 as their fiscal year-end because of all the work that goes with it. They may choose January 31 as their fiscal year-end because it gives them some time after the busy season.”

A company that relies on government grants, on the other hand, may want to end their fiscal year on March 31, the fiscal year-end for the Government of Canada. Program funding often starts in April and would coincide with the beginning of the fiscal year.

The federal regulations concerning your type of business

If you are a sole proprietor then you will report your business income with your personal income taxes so, you have no choice but to have a Dec. 31 fiscal year-end.

The administrative convenience and cost of your fiscal year-end

You may choose a date that minimizes the workload and expense of preparing and filing your financial statements and tax returns or a date consistent with the industry standards or best practices.

Fisher says if you use an outside accountant consider the availability of your accountant.

“When so many people have December 31 as their fiscal year-end, accountants are busy filing everyone’s corporate income taxes by the June 30th deadline

Ultimately, the choice of your fiscal year-end depends on your specific business situation and objectives. You may want to consult with a professional accountant or tax advisor before making a decision.

Can I change my fiscal year-end?

According to the Canada Revenue Agency (CRA), changing your fiscal year-end is perfectly legal but requires government approval.

The CRA requires you to write a letter requesting approval for a fiscal period change. You’ll need to include details explaining the reasons for the change and the effective date.

However, the CRA says that in the following situations, no approval is needed:

  • your business has been shut down, with its final return filed for an abbreviated fiscal period
  • the entire operation is relocating to another country, becoming exempt from tax or ceasing to be exempt from tax
  • the company has been acquired by a person or group

What is the difference between the fiscal year-end and the calendar year-end?

“A calendar year will always end December 31. A fiscal year ends on a date that makes sense operationally,” Fisher says. “Companies can choose what aligns with their needs.”

Why are year-end financial statements important?

Fisher says year-end financial statements are a vital part of your fiscal year-end.

“They provide a snapshot of your company’s financial health and give insight into your performance, operations and cash flow.”

The three financial statements that she advises every company prepare for their fiscal year-end report are the following:

  • Balance sheet
    Summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time.
  • Income statement
    Shows what your company earns, what it spends and if it’s making a profit over a specific period.
  • Cash flow statement
    Records the amount of cash that comes into and goes out of a company over a specific period.

Fisher says these three documents help the operations and management team and the owners determine how the business performed year-over-year. They also allow you to compare forecasts and budgets and see if you met your goals and targets.

“You’re finding out how you did in prior periods and how you did against what you planned on doing.”

She says this will allow you to make better decisions and have more fruitful discussions with your leadership team.

The CRA also requires that you submit financial statements as part of your annual tax returns.

“Your accountant, or whoever does your taxes, will need your financial statements to complete that tax return.”

And if you are a publicly traded company, potential investors will be looking at your financial statements to determine whether they want to invest or not.

Fiscal period for income tax purposes

Canadian corporations need to file their income tax return six months after their fiscal year-end.

“If your fiscal year-end is December 31, you have until the end of June to file your taxes.”

But, she adds, you’ll need to pay that money early. “If you owe money, you have to pay your taxes three months after your fiscal year-end. A company that knows they owe money must send a cheque to the government based on an approximation of what they owe.”

Financial statements and fiscal year-end

Financial statements may be prepared for different timeframes, including fiscal year-end. Those annual financial statements cover the company’s latest fiscal year. Companies may also prepare interim financial statements on a monthly, quarterly or semi-annual basis.

Financial statements generally provide information for both the latest period and the prior period, to make comparisons easier. For example, a financial statement covering January 1 to December 31, 2024 would include the statements for both that year and the previous year (January 1 to December 31, 2023).

How do you prepare for fiscal year-end?

Ending your fiscal year means closing your books and ensuring everything is reconciled, that is, all transactions are consistent in all your statements.

Fisher says most accounting systems, as well as external accountants, have a year-end close process. But closing your books at year-end is a bit of a misnomer since you may receive missing information after the closing.

“You may have to make adjustments in the month following your fiscal year-end to ensure you’ve entered any missing information into the system,” Fisher says. She adds that the internal statements generated by your accounting system will need to match the external statements you’re using to file your taxes.

A fiscal year-end checklist

Prepare for your fiscal year-end by making sure these eight actions have been taken:

1. All supplier invoices from the year have been received

  • Ask your suppliers to confirm they have sent all invoices for the year.
  • Review your records to ensure that all invoices have been received and entered into your system. If you find any discrepancies, reach out to your suppliers to resolve them.

2. All customer invoices from the year have been sent

  • Review your records to ensure that all invoices have been sent to customers.
  • Check your accounts receivable to ensure that all invoices that are due have been paid.
  • Review all customer balances owing. If there are balances that will not be collected by fiscal year-end, expense the amount to bad debt on the profit-and-loss statement.

3. All employee expenses, such as payroll and employee benefits, have been entered

  • If your payroll is bi-weekly, you may need to accrue a few days’ payroll expenses, so that the expense corresponds to the last day of the month.
  • Review vacation records for employees and ensure that they are up to date and you have the proper accrual for your vacation expense liability.

4. End-of-year physical inventory valuation has been completed

  • Complete a physical count of your inventory and ensure the quantities jibe with your detailed inventory subledger.
  • Review all inventory items and write off any obsolete inventory.
  • Enter all inventory adjustments and ensure that the inventory subledger balances with the inventory account of current assets on the balance sheet.

5. Asset values and current-year depreciation have been calculated and verified

  • Review your assets subledger and ensure all assets are accounted for and new assets have been recorded and align with the proper asset classification.
  • Calculate and record the depreciation for each asset classification based on your accounting policy.
  • Ensure the assets subledger reconciles with the fixed asset total on the balance sheet.

6. Bank accounts have been reconciled, to ensure all balances are accurate on your balance sheet

  • Collect your bank statements for the year. These statements will show all the transactions that have occurred in your account during that period.
  • Compare the transactions on your bank statement with your own records. This will help you identify any discrepancies between the two.
  • Make any necessary adjustments to your records to account for possible discrepancies. For example, if you find a transaction on your bank statement that’s not in your records, you will need to add it.
  • Once you’ve made the necessary adjustments, you can reconcile your account. This involves comparing your bank statement’s adjusted balance to that of your records. If the two balances match, your account is reconciled.
  • n.b. Bank reconciliations should be done on a monthly basis.

7. Lines of credit and other bank loans have been reconciled, to ensure all balances are accurate on your balance sheet

  • For operating lines of credit, loans, capital leases and all other debt, ensure all principal and interest payments have been recorded accurately. This applies to interest expense on the profit and loss statement and to loans on the balance sheet.
  • Verify final balances owing on the balance sheet appear on the loan statement and amortization schedule.

8. All other balance sheet accounts have been confirmed to be accurate and reflect the asset, liability or equity balance

  • For any expense that has been prepaid, such as insurance, determine the number of months remaining for the current policy and record the future expense as a current asset.
  • Obtain all online credit card statements and ensure all charges up to the end of the year have been recorded as expenses.
  • Ensure all tax accounts are accurate and reflect the amounts you owe to the government, or it owes you.
  • If the business was profitable, accrue an estimated corporate income tax expense.

Do you need a notice-to-reader financial statement at the fiscal year-end?

Notice-to-reader financial statements are third-party compilations of information provided by the company. Unlike audited financial statements, the information undergoes no tests, and the accountant preparing them offers no opinion or assurance. Accordingly, they put the readers “on notice.”

“The balance sheet, income statement and cash flow statement are in an official report. It’s like a report card for investors and banks,” Fisher says of the fiscal year-end reports. “The lenders and the investors need to ensure they can rely on your numbers.”

Next step

Discover how to track and interpret pertinent financial information for your business with the free BDC guide Understand Your Financial Statements.

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