2016-12-09 00:00:00Finance and AccountingEnglishLearn what days sales in inventory is, what that means, and how the calculation can be used to better manage and forecast inventory levels.https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2016/12/Worker-Reviewing-Inventory.jpghttps://quickbooks.intuit.com/ca/resources/finance-accounting/accounting-tips-forecast-inventory-using-days-sales-in-inventory/Accounting Tips: Forecast Inventory Using Days Sales in Inventory

Accounting Tips: Forecast Inventory Using Days Sales in Inventory

2 min read

Wondering how to choose your fiscal year? Your business budget, tax returns, and financial reports fall into a 12-month period called your fiscal year, but it doesn’t necessarily have to follow the calendar year. Most sole proprietors and partners in Canada use the calendar year as their fiscal year, unless they request a different fiscal end date. But incorporated businesses get to choose their fiscal year end at the time of incorporation, as long as the first fiscal year is 53 weeks or less. Many corporations stick with a fiscal year that coincides with the calendar year for simplicity, but you can capitalize on some benefits by opting for a non-calendar fiscal year depending on your situation.

Matching Revenues and Expenses

Choosing an unnatural fiscal year may more accurately match your revenue and expenses. If you incur expenses in November for an annual fundraising event that always happens in January, this single event gets split between two calendar-based fiscal years. You want the revenue you earn to be in the same reported period as your expenses for tax purposes. By changing the fiscal year, you can deduct the expenses against your revenue to minimize your tax liability in the same fiscal year. This also makes the most sense for budgeting and internal reporting. You can analyze how your business is doing if all related transactions occur within the same fiscal year.

Access to Resources

If you operate on a non-calendar year, your tax deadlines don’t line up with most other companies, since your corporate tax deadline is six months after your year end date. This gives you better access to resources and individuals outside of your company. You have more opportunities to meet with and speak to your vendors, suppliers, customers, and government contacts if your fiscal year ends in July, because these parties aren’t busy. Your external accountant may even offer lower rates for unnatural fiscal years because you’re using the services during slow periods.

Strong Fourth Quarter

The fourth quarter of your financial year includes the last three months leading up to your fiscal year end date. If your fiscal year ends on September 30, the fourth quarter includes July, August, and September. Businesses typically want to finish their fiscal year with strong numbers. You might choose to end your fiscal year just after your busy season to give your company that strong finish. If you run an ice cream shop with summer being your busiest season, ending your fiscal year just after you close for the season shows strong numbers as the year wraps up. Waiting until after your busy season also means your business is a little slower to give you time to handle the books and tax prep activities.

Choosing a non-calendar fiscal year can help you better control your bookkeeping and finances based on seasonal fluctuation and your business needs. Keep your books accurate and up to date automatically. Change the way you manage your finances now.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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