What Is a Commercial Year?

A commercial year is a 360-day period composed of 12 months of 30 days that is used by some businesses and non-profit organizations to internally track changes in accounts. Differences in the number of days in each calendar month are adjusted so that comparisons for sales, expenses, etc. are easier to make.

Key Takeaways

  • A commercial year is a 360-day period composed of 12 months of 30 days that is used by some businesses to internally track changes in accounts.
  • Differences in the number of days in each calendar month are adjusted so that comparisons for sales, expenses, etc. are easier to make.
  • A commercial year does not have to follow the calendar year’s start and end date and can be modified to best suit a company’s needs.
  • This format is used for internal purposes and is not accepted in formal published financial accounts filed with the Securities and Exchange Commission (SEC).

How a Commercial Year Works

In the calender year that most of us live by, each year runs from January 1 to December 31 and certain months contain more days than others. These variations can prove problematic to companies that wish or need to keep track of operations over the course of the year, particularly as a month made up of 31 days can not immediately be compared to one lasting 28 days.

Such issues can be sidestepped by employing a commercial year model. Under this format, every month of the year consists of 30 days. Suddenly it becomes much easier for companies to compare monthly performance and expenses, project future figures and evaluate and manage inventory: all the finished goods or materials used in production that it has stored away.

Important

The commercial year format is used for internal purposes and is not accepted in formal published financial accounts filed with the Securities and Exchange Commission (SEC).

While it’s true that an analysis of one-week or even daily increments could be performed to adjust for differences in days of the month, the 30-day period is preferred because it smooths out short-term noise. Another benefit of the commercial year is that it does not have to follow the calendar year’s start and end date and can be modified to best suit a company’s needs.

Example of a Commercial Year

Commercial year accounting is particularly common in the retail sector. If a manager wishes to understand changes in the revenues of stores from month to month, using a calendar year may obscure true performance. 

For instance, sales for January could be higher than sales in February simply because there are more days in January than in February. Thus, a manager would prefer to see results in 30-day increments to more accurately evaluate the extent of any change in the top-line results.

Thirty-day expenses in January can also be contrasted with 30-day expenses in February to assist the manager in making improvements toward profitability.

Commercial Year vs. Fiscal Year

A commercial year is not accepted in formal published financial accounts such as Form 10-K and Form 10-Q filed with the Securities and Exchange Commission (SEC). Instead, the numbers companies use to calculate financial statements are based on their fiscal year (FY).

Fiscal years (FYs) follow the same format as the calendar year, meaning they contain the same number of days, 365 or 366, and do not apply standard length months. For the vast majority of companies, the FY runs from January 1 to December 31, too, although there is a bit more flexibility offered in this area.

As is the case with a commercial year, companies are permitted to adopt a FY that deviates from the calendar year’s start and end date based on their individual needs and the type of business that they run. In order words, nonprofit organizations (NPOs) can align their year with the timing of grant awards, and retailers can present their annual results after the busy Christmas and new year holiday season.