Page 30 - Account for Ag - 2019

2-6 Accounting for Agriculture CH 2]

THE ACCOUNTING PERIOD OR FISCAL YEAR

For income tax purposes, a system of accounting must cover a consecutive twelve month period. This twelve
month period may be either a calendar year or some other determined twelve month period known as a fiscal year.
A calendar year is one that begins on January 1 and concludes on December 31. Whereas a fiscal year is one that
begins on the first of any month and concludes on the last day of the month preceding; as an example a fiscal year
might be one that begins on April 1 (the first of any month) and concludes on March 31 (the last day of the month
preceding). Thus it is then easily determined that a calendar year may also be a fiscal year even though a fiscal
year need not be a calendar year.
As many of us are familiar with the income tax deadline of April 15th one might think that calculating taxes
on a fiscal year basis would be difficult. Not really, especially when one reads the tax code which states that the
income tax liability is due on the first day following the close of the tax year and is delinquent three calendar
months plus 15 days after the close of the tax year (a tax year being a designated 12 month period). Thus if a
business's fiscal year concludes on December 31st then any income taxes due are delinquent after April 15th.
However, if the fiscal year concludes March 31st, then any income tax liability would be delinquent after July
15th.
The adoption of a fiscal year for farmers is recommended when it best fits the majority of the crop and
livestock enterprises on a farm by reflecting the true net profit from their annual cycles of production--from
planting or production through marketing. However, for most farmers the calendar year is satisfactory and
convenient.

Chapter Summary
The preceding discussion is elementary to accounting. It emphasizes the fundamental accounting concept of
the business unit being an entity. Because of this concept, in accounting and for accounting purposes, every
business is treated as a separate entity, separate from all other businesses and separate from the person or persons
who own it. Of course the business activities may include a variety of enterprises to be identified within the
business concern, but the business unit is an entity. This results in a set of separate records for each business in
which the assets are equal to the equities of its owner or owners and its creditors.

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