Calendar Year Vs Rolling Year: Understanding The Key Differences

As we enter the year 2023, many businesses and organizations are faced with the decision of whether to use a calendar year or rolling year for their financial reporting and planning. While both options have their advantages and disadvantages, it’s important to understand the key differences between the two to make an informed decision.

What is a Calendar Year?

A calendar year is a 12-month period that starts on January 1st and ends on December 31st. This is the most common fiscal year used by businesses and organizations in the United States. It aligns with the standard calendar year and makes it easier to compare financial data across different entities.

Pros of a Calendar Year:

– Easy to understand and follow
– Aligns with the standard calendar year
– Makes it easier to compare financial data across different entities
– Simplifies tax reporting and compliance

Cons of a Calendar Year:

– May not align with a company’s natural business cycle
– May not coincide with a company’s seasonality
– May require additional planning and forecasting to account for year-end expenses and revenue

What is a Rolling Year?

A rolling year, also known as a fiscal year, is a 12-month period that starts on any date and ends 12 months later. This option is often used by companies whose business cycle doesn’t align with the standard calendar year. It allows for more flexibility in financial reporting and planning.

Pros of a Rolling Year:

– More flexibility in financial reporting and planning
– Aligns with a company’s natural business cycle
– Can coincide with a company’s seasonality
– May simplify year-end planning and forecasting

Cons of a Rolling Year:

– May be confusing for external stakeholders
– May make it difficult to compare financial data across different entities
– May require additional planning and forecasting to account for year-end expenses and revenue
– May complicate tax reporting and compliance

Question and Answer:

Q: Which option is better for my business or organization?

A: The answer depends on a variety of factors, including your business cycle, seasonality, reporting requirements, and tax considerations. If your business aligns with the standard calendar year and you don’t have any major seasonality issues, a calendar year may be the best option. If your business cycle doesn’t align with the standard calendar year or you have significant seasonality, a rolling year may be a better fit. It’s important to consult with your accountant or financial advisor to determine which option is best for your specific situation.

Q: Can I switch from a calendar year to a rolling year or vice versa?

A: Yes, you can switch from one option to the other, but it may require additional planning and preparation. For example, if you switch from a calendar year to a rolling year, you’ll need to account for the extra months and adjust your reporting and forecasting accordingly. It’s important to consult with your accountant or financial advisor to ensure a smooth transition.

Q: Do I have to use a calendar year or rolling year for financial reporting?

A: No, there are other options available, such as a 52-53 week year or a short tax year. However, these options are less common and may require additional planning and preparation. It’s important to consult with your accountant or financial advisor to determine which option is best for your specific situation.

Conclusion:

Choosing between a calendar year and rolling year can be a complex decision, but understanding the key differences between the two can help you make an informed choice. By evaluating your business cycle, seasonality, reporting requirements, and tax considerations, you can determine which option is best for your specific situation. It’s important to consult with your accountant or financial advisor to ensure a smooth transition and comply with all reporting and compliance requirements.