A fiscal year is the 12-month period for which an organization plans the use of its funds. Specifically, the fiscal year refers to a period of 12 consecutive months ending on the last day of any month except December. Fiscal years are important not only for management but also because it is the period over which taxes on income are calculated.
The U.S. government's fiscal year (also known as financial or budget year) runs from October 1 to September 30. For instance, fiscal year 2011 runs from October 1, 2010, to September 30, 2011.
Organizations choose to use a fiscal year different from a calendar year (12 consecutive months running from January 1 to December 31) so that they may have a more natural planning period. Retailers, for instance, at the end of the calendar year, would have higher inventories as well as more bills to pay and amounts to receive. The complexity created by this situation leads them to use a planning year different from the calendar year.
