Glossary · Also called Accounting year
Financial year
The 12-month period a business's accounts cover.
What it means
The annual accounting period for which financial statements are prepared, not necessarily the calendar year.
Example
A business might run its financial year from 1 April to 31 March.
Why it matters
Statements are headed 'for the year ended…' to show which financial year they cover.
In practice
The financial year sets the boundary for every year-end procedure. It fixes the date when inventory is counted, depreciation is charged, accruals and prepayments are adjusted and the statement of financial position is drawn up. It need not follow the calendar year. A business might run from 1 April to 31 March. A sale on 31 March then falls in one year and a sale on 1 April in the next.
For example, rent of RM12,000 is paid to cover fifteen months. Only RM9,600 belongs to a twelve-month financial year. RM2,400 is carried forward as a prepayment.
A closely related term is accounting period. A financial year is twelve months long. An accounting period is any chosen span, such as a month or a quarter for internal management accounts. The financial year is the most common accounting period for published statements.
If year-end adjustments are hard to time, one of our teachers can work through the dates with you in a full past-paper question. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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