When businesses enter information in their books they encounter a broad problem: Businesses are compared by annual cycles, but years are not equal to each other. Years can have varying amounts of days of the week based on the calendar and months can shift, falling on different dates depending on arbitrary annual rules. Years can also change globally, based on cultural preferences. This makes it very difficult to provide accurate financial information for analysis, so businesses have created a primary financial year created from equal months. A fiscal month is the building block of the financial year, a financial concept used by businesses to chart their growth and calculate their earnings, expenses and other key financial data.
A fiscal month is a specific portion of time, technically one-twelfth of a financial year. These months do not have a direct relation to the normal months, although they do often match up at varying levels. Businesses use this fiscal months to chart monthly sales and expenses in the long term to compare levels and make key decisions. The length of a fiscal month is based on a strict formula for determining a financial year, rather than the rules that govern standard months.
Companies can begin their financial years at a variety of starting places (typically the beginning of a month), so different companies have different definitions for their annual analysis. No matter when it begins, the financial year is divided into four quarters and each quarter has three fiscal months. Because the first fiscal month is not necessarily January, the year may closely track the actual year, or there may be a wide variance. The United States government, for example, starts its financial year in October.
Fiscal Month Lengths
Each fiscal month has a different length depending on its place within the four quarters. The first month of every quarter has five weeks. The second two fiscal months in each quarter have only four weeks. This creates a regular system for calculating fiscal months and removes any random differentiation between the months. Often, each month begins on a Monday and ends on a Sunday at midnight, although this may vary according to the business.
Because fiscal months are so uniform, they are difficult to calculate from year to year without conversion tables and formulas. Most business software comes with programs that automatically move information into financial year formats without any direct mathematics needed. Basic conversion equations are used when mentally moving a month or quarter into fiscal terminology, such as FiscalMonth = Mod [CurrentMonth + (12 - MonthBeginningFiscalYear) +1].