In business accounting, fiscal quarters are different from what you may expect in terms of a traditional calendar year. If you look at a traditional calendar, there are 12 months which are divided into 4 quarters, each 3 months long. They start in January and end in December. However, that is a bit different than what happens in the business world.
Whether you are a business owner or you are considering a move into accounting, you need to understand how fiscal quarters work. The key to remember is that while the premise is still the same, the fiscal quarters of a company may be different from one organization to the next.
That is because not all companies began at the same time, or they may have made adjustments to their accounting methods over time that now has their quarters aligned at different times than the calendar year.
So, what are fiscal quarters? In short, they are three month segments of time in which a company will typically share its financial information.
Some companies do follow a calendar year’s quarters when it comes to their fiscal management. If a standard calendar year is followed, this typically means the quarters follow the standard 12 month calendar. In this case, the quarters are as follows:
- Q1, the First Quarter, runs from January 1 through March 31
- Q2, the Second Quarter, runs from April 1 through June 30
- Q3, the Third Quarter, runs from July 1 through September 30
- Q4, the Fourth Quarter, runs from October 1 through December 31
Now, if a company’s quarters align with the standard calendar listed above, they then have the same dates. That means that quarter 1 goes from January through March. It is somewhat common for this to be the case because it helps to streamline the company’s information and allows them to follow a very simple fiscal year.
Yet this does not always happen. If you need to verify the fiscal quarters for any company, do not assume that they follow the traditional quarters. Rather, be sure to verify this information.
What Are Non Standard Fiscal Quarters?
This is where things can sometimes become a bit more confusing. Now, remember, companies can pick and choose how their quarters run. They may be doing this because of when the company was started or when the company's financials align. They could have been purchased in the middle of a year. Sometimes, it is not clear as to why the quarters are not following the traditional calendar year.
The one thing to know is that these dates typically run in three month patterns. While the quarters may not start at the same time as standard calendar years, a quarter is still three months long and sequential.
Companies often do this when they have uneven revenue streams as well. That could mean that their fourth quarter is significantly larger than most. One good example of the use of non standard fiscal quarters is Apple, Inc. The company’s fiscal quarters are a bit different.
For Apple, their fiscal quarters run approximately as follows with the exact dates varying each year:
- Quarter 1: October, November, December
- Quarter 2: January, February, March
- Quarter 3: April, May, June
- Quarter 4: July, August, September
Why Do Fiscal Quarters Matter?
Fiscal quarters are not just set up to provide the company with information. Rather, they are designed to provide information in a clear and orderly manner to stakeholders. That is a requirement for any publicly traded company. They must release timely financial statements for each quarter that allows investors to best understand how the company is performing.
These reports are called 10-Q reports in the United States. All publicly traded companies must file these reports with the Securities and Exchange Commission.
Companies complete fiscal quarters for numerous reasons. One of those is the requirement to meet the SEC's rules for providing stakeholders with the information they need. However, they are also necessary for companies to report their taxes to the government. They may also provide a valuable amount of information just from a business standpoint in helping the company to make decisions about how to manage their company.
So, why do companies use fiscal quarters like this? Here are some of the most important reasons.
Company Analysis: Fiscal quarters provide a way for companies to track how they are doing from one year to the next by basing those comparisons off of the previous year. This can help with planning for the future too, because it allows them to get an idea of how the company is trending. Are sales up from the same time last year? Is the company struggling more so than last year? From this, they can then determine what happened to make those changes occur.
Transparency: As noted, stakeholders in the company need to be informed about the current financial health of the company. Fiscal quarters allow the company to provide information on a consistent basis. This information is beneficial to any investor, stockholder, shareholder, or other party that has some vested interest in the company. Fiscal quarter reports provide clear information about the company’s financials during that period of time.
Valuation: Fiscal quarter reports can help to provide valuation, analysis, as well as comparison tools for potential investors. Investors who may be considering putting money into a company can look back over a series of fiscal quarters to easily compare how well the company is doing. They can also use this format to see if the company is improving year over year even when the company has seasonable revenue that could be skewed following a simple calendar method.
Consistency: Fiscal quarter reports create consistency. That means that stakeholders can compare information easily and with some consistency even when they are comparing one company to the next. They understand when their quarters are and can align that with various comparable.
Accountability: Companies are held responsible for submitting these reports to the SEC. That means that, from an investor's point of view, there is less risk of not knowing what is going wrong with a company. That gives the investor more ability to make confident investment decisions.
Private companies are not required by law to provide fiscal reports like this to the SEC. However, most companies still create them. They provide a solid way of tracking financial information from one year to the next. They can help with decision making, planning for future quarters, and growing the business year over year.
What About Fiscal Quarter Reporting for Taxes?
Another way in which companies use fiscal quarter data is to report their taxes to the Internal Revenue Service (IRS) each year. Unlike citizens, all companies have to tell the IRS how much money they are making throughout the year and pay taxes on those funds.
Some people are required to pay quarterly estimated taxes. That includes self-employed individuals. These are estimated tax payments for that quarter. With the help of an accountant, it is possible to determine how much money you likely owe in taxes for the revenue generated during that period of time. The IRS does not want you to wait until the end of the year to send in a check or to do so at tax time the following year.
Estimated tax payments are a requirement of some companies. Those that must send them in need to do so every three months, within two weeks of the close of the quarter. Here is a list of the estimated tax payment due dates, these may change so check the irs website for exact dates.
- The first quarter runs from January 1 through March 31. The tax filing deadline is April 15.
- The second quarter runs from April 1 through May 31. The tax filing deadline is June 15.
- The third quarter runs from June 1 through August 31. The tax filing deadline is September 15.
- The fourth quarter runs from September 1 through December 31. The tax filing deadline is January 15 of the following year.
Keep in mind that you should check with the IRS to determine your requirements for submitting estimated taxes for your business.
Some Financial Reports Require Fiscal Quarters
Staying on top of your business’s financial health is a challenge to do if you do not have a system in place to make that possible. Financial reports are some of those tools that you have that can give you insight into how your company is doing at any given time. Some of them are broken down into fiscal quarters so that you can track where you are financially at different times of the year and from one year to the next with clarity.
It is very common to see fiscal quarters broken down on the following financial reports:
- Business expense statements
- Spending habit statements
- Profit statements
- Income statements
- Incoming and outgoing money (P & L) statements
In addition to this, many companies establish fiscal quarter goals. That is, they work to create a plan for how much revenue they will have for each quarter. These goals are based off of a great deal of information, often from numerous sources and plans.
Some companies establish fiscal quarter goals based on projections for the company to use for paying out benefits to leadership or to determine if they will need to adjust their budgetary goals so that they remain in the black throughout the year.
Quarterly Reports Required by the SEC
As stated, the SEC requires organizations to complete Form 10-Q, which provides information about the fiscal quarter to the organization. This is done at the end of the first three fiscal quarters for the company. Each of these filings must include unaudited financial statements and operations for the previous three quarters.
Publicly traded companies also have to file Form 10-K. This is an annual report that provides a more comprehensive breakdown of the financial health of the company. It often includes details on the quarterly reports filed as well as additional information such as presentations and audit statements. It may contain disclosures about the company as well.
Most often, companies release quarterly earnings reports that include "guidance." This is a forward-looking plan for what the company expects to happen in the coming quarters. For example, a company may know that it is launching a new product in the following quarter, and that could make a difference in its financial reporting. Companies may also create guidance that alerts stakeholders to information related to things like a drop in performance, such as from economic conditions or a shortage of materials.
Fiscal quarters also matter to stakeholders who expect to be paid dividends. Most companies in the U.S. will pay dividends based on quarterly information. That is, most companies will distribute the funds more or less evenly for each of the four fiscal quarters.
Sometimes, there is a significant amount of volatility in the company’s stock prices when they pay quarterly dividends when the ex-date occurs. This is when many investors will rebalance their investments after they learn what the dividend growth rate will be.
What Are the Pros of Quarterly Reporting?
There are a number of benefits that come from using fiscal quarter reporting. For many companies, this information allows for better decision making, and it enables investors to make decisions about what their goals are. They do not have to wait until the company files an annual report to provide that information. This allows investors and, in some cases, companies to be more nimble and flexible.
It is also important to know that quarter reporting can limit long-term investments and growth. Some companies may find that quarterly reporting means that investors who are looking for short term growth to cash in early. While this can be a good thing in some cases, it can also be limiting to companies who are looking for long term investors. In all cases, fiscal quarters are a big part of the accounting and financial management of a company.