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What is a natural business year?

Author:
Harold Averkamp, CPA, MBA

Definition of Natural Business Year

A natural business year is the period of 12 consecutive months (or 52-53 consecutive weeks) ending at a low point of the organization’s activities for the year.

Examples of a Natural Business Year

The natural business year for a school year is July 1 through June 30. The reason is that school year classes are usually finished in June.

A retailer’s natural business year might be the 52-53 consecutive weeks ending on the Saturday closest to each February 1. This is a low point of activity for the retailer since its holiday season is finished, the merchandise returns from holiday sales are completed, and the January clearance sales have taken place. [The 52-53 week periods with 13-week quarters allows for better comparisons than calendar months.]

Many companies have a natural business year of January 1 through December 31. On the other hand, some companies are required by government regulations to end their accounting years on December 31, even though it is not the end of their natural business year.

The term fiscal year is associated with companies having financial reporting years that do not end on December 31.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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