The annual accounting period adopted by a business is known as its fiscal year. Fiscal years begin with the first day of the month selected and end on the last day of the following twelfth month. The period most commonly used is the calendar year. Other periods are not unusual, especially for businesses organized as corporations. For example, a corporation may adopt a fiscal year that ends when business activities have reached the lowest point in its annual operating cycle. Such a fiscal year is called the natural business year. At the low point in its operating cycle, a business has more time to analyze the results of operations and to prepare financial statements.
Because companies with fiscal years often have highly seasonal operations, investors and others should be careful in interpreting partial- year reports for such companies. That is, you should expect the results of operations for these companies to vary significantly throughout the fiscal year.
The financial history of a business may be shown by a series of balance sheets and income statements for several fiscal years. If the life of a business is expressed by a line moving from left to right, the series of balance sheets and income statements may be graphed as follows:
Source: Warren Carl S., Reeve James M., Duchac Jonathan (2013), Corporate Financial Accounting, South-Western College Pub; 12th edition.
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