What is the financial year?
What is the financial year? What is financial year and assessment year. In simple language, the financial year is said to be the year in which companies and organizations prepare their budget. Just as the year in the calendar is from 1 January to 31 December, in the same way, there is a financial year in accounting which starts on 1 April and ends on 31 March. If the balance sheet of any company or person is seen, then all the information in it is also from 1st April to 31st March. It is not necessary that the financial year of all the institutions starts from 1st April itself, there are schools and many other institutions which keep their financial year according to their own. But in accounting, the financial year starts from 1st April and ends on 31st March.
understanding financial year with example
To explain the financial year in India, let me give you an example of a computer shop. There is a computer shop which in the year 2021 from 1st April to 31st March made total computer sales of Rs.100000/-. Some computers were sold on loan by the shop owner and some were sold for cash. When the annual report is prepared by the accountant, the details from 1st April 2021 to 31st March 2022 will be given in it. If sales are made on a computer loan by the shop owner and its payment is received in the next year, then its entry will be done by the accountant in 2022- 2023.
The year in India starts from 1st January and ends on 31st December. But it is not necessary that the financial year of all the companies or institutions should be started from 1st January itself. The financial year in accounting is from 1st April to 31st March. For this, you can also understand with the example of a school. In India, the school is opened in July and closed by the end of March or April. But when the balance sheet of the school is finalized, its audit is also done from April 1 to March 31. The year of most of the companies and institutions in India starts from 1st April.
I would like to highlight one more thing that when a loan is taken from a bank by a person or any institution, then, in that case, the financial year of the bank is from 1st April to 31st March. But in the case of a moneylender, it is not necessary that he should take money from you in a year or on 31st March. It also depends on how much time you have taken money for. If you want, you can repay the money of any bank or moneylender even before time.
What is the difference between the financial year and assessment year?
The meaning of assessment year is taken from the year which has passed. There is a gap of one year between the assessment year and the financial year. For any company or individual, the assessment year is the year spent, whereas the financial year refers to the year in which the accounts of a company are currently being maintained. If a company is doing accounting in the year 2021 – 2022, then 2020 – 2021 would be the assessment year for it. The assessment year shows the past while the financial year shows the present.
A financial year is used to run any company properly and to extract its details from time to time. This is a period of viewing the report of any company, which the companies maintain according to their own.