Question

What is a fiscal year? Why might companies choose to use a fiscal year that is not a calendar year?

Short answer

Fiscal year is the accounting period of twelve months, which is used to prepare financial statements. Low point in business activity enables company to choose fiscal year other than calendar year.

Step-by-step solution

Explanation on Time Period Concept

As per the time period concept, it is assumed that activities of the business can be divided into small time segments such as quarter, month or year.

Explanation on Fiscal Year

Fiscal year is used to report the performance of the business for the particular period, normally it is of twelve months.

Generally, business has lower business activity at year end, but in case of retailers such as Wal-Mart Stores Inc, low business activity comes after the month of December which is normally holiday month.