DEFINITION of Commercial Year
A commercial year is a 360-day year composed of 12 months of 30 days which makes it easier for a business to internally track changes in accounts. The commercial year adjusts for differences in the number of days in each calendar month so that comparisons for sales, expenses, etc. can be made on the same basis of a 30-day period.
BREAKING DOWN Commercial Year
A commercial year is not accepted in formal published financial accounts such as Form 10-K and Form 10-Q filed with the SEC. Instead, companies report on a fiscal year, which for the vast majority of companies coincides with the calendar year (January 1 to December 31). For internal purposes, though, a commercial year can be used to record key figures to provide equivalent period comparisons. Commercial year accounting is 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 example, 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. 30-day expenses in January can also be contrasted with 30-day expenses in February for additional information to assist the manager make improvements toward profitability.
An analysis of one-week or even daily increments could be performed to adjust for differences in days of the month, but the 30-day period smooths out short-term noise. Commercial year data compiled over long periods can yield useful information for management of retail operations or any other business for which this type of internal accounting is appropriate.