Financial year

What is a financial year?

The term financial year refers to the time covered by one accounting period. By default this is 12 months, i.e. 1 year from 1 January to 31 December, a calendar year. But nothing prevents you from starting on 1 April and ending on 30 March of the following year. After all, that is also a financial year, a so-called non-calendar financial year.

Extended or shortened financial year

For various reasons, a financial year can exceptionally be shorter or longer than 12 months. A shorter one is called a shortened financial year, which must last at least 1 day, although the accounting standard is rather 6 months. A longer one is an extended financial year, which by law may last a maximum of 24 months minus one day. However, the Belgian Accounting Standards Commission imposes a maximum duration of 18 months. Especially start-ups that begin in the second half of a calendar year – i.e. after 30 June – opt for an extended financial year, which then runs from the start date of their activity until 31 December of the following year. That way, their second financial year can coincide with the following calendar year.

There are other reasons to choose a shortened or extended financial year, for example a highly disruptive incident such as a fire. A longer financial year then allows operations to be normalised within one incident period (of up to 18 months). Both a shortened and an extended financial year should be the exception.

A shortened or extended financial year must be included in the articles of association, which requires an extraordinary general meeting and a notarial deed. That decision must be taken during the current financial year concerned, so it cannot be taken afterwards, and it must be justified.

Non-calendar financial year

The non-calendar financial year described above suits some activities better than a calendar year, for example seasonal trade. This way, the accounts align well with the economic activity, so that the figures are representative of the business activity in successive years.

Closing the financial year

Non-calendar, extended or regular financial year: at the end comes the closing. After all, a financial year is also the period covered by a financial report. The annual accounts are prepared at the end of a financial year. They consist of a balance sheet and an income statement (also the profit and loss account), both of which reflect the movements in that financial year (the first as a status like a snapshot, the other as an evolution).

As a business owner, you guarantee that the necessary documents for the accounting processing are available at the end of the financial year. Of course, that is rather late; in fact, business owners continuously ensure that the relevant documents are available and processed (which the law actually requires; for example, you cannot prepare the VAT status only at the end of the year).

Preparing a balance sheet requires specialised knowledge, including closing entries on various balance sheet accounts. The balance sheet is also accompanied by some legally required reports, such as that of the Board of Directors. The balance sheet must be filed for publication within 30 days after the annual accounts have been approved by the general meeting. The absolute limit is 7 months after the closing of the financial year.

Financial year in onFact

In onFact, you can easily set the start of your financial year, so you can work with any type of financial year. At the start of a new financial year, the sequence number of your documents automatically starts again from zero.