In businesses, firms, and organizations, people involved should know the Fiscal year or sometimes known as financial year or budget year. This is a period or a timeframe that a company and even the government use for their accounting purposes and for the preparation of their financial statements and other related documents. A complete one-year or twelve-month cycle or accounting period is called the End of Year Financial Year.
There may be times when the fiscal or financial year of a company may not be matched with the normal calendar year. A company can choose to make their fiscal year matched with the calendar year or not, depending on the company’s needs. It is also because of tax reasons.
In studying fiscal years and accounting in general, one term usually looked into is depreciation. You may ask, ‘What is depreciation?’ Basically, depreciation is an indicator of how much of a specific asset’s value has already been used up. It is used in accounting to match the cost or expense of a certain asset to the overall income that the asset assists the company collect. To make this clearer, let us take this situation for example. Suppose a certain company wants to buy an appliance or piece of equipment for $100 000. If the company expects that item to last for about 10 years, it will be depreciated for over 10 years. Every fiscal year, the company will dole out $10 000, which will ultimately correspond with the money that the piece of equipment helps the company earn each year. This is assuming that straight-line depreciation is what happens. You may use a depreciation calculator to calculate the simple straight line depreciation of any asset you want to check.
Businesses can deduct or take off the cost of the physical assets they procure as their business expenses. Despite that, businesses and companies must depreciate their assets according to IRS rules. This is for Tax Depreciation, or the depreciation, which can be listed as an expense or expenditure on a tax return for a given period under applicable tax regulations and laws. In general, this leads to more immediate recognition of depreciation expenses. Under certain circumstances, tax laws allow the cost of a few fixed assets to be charged completely to the expense as sustained. This is why one tax year is the effective depreciation period.
These are just few of the things one must bear in mind when going into business and more so if you are practicing or studying accounting.