Month-end close

In practice, a close runs through the same steps each month. Once the month’s transactions are recorded, each bank, card and loan account is reconciled to its statement. Books kept on the accrual method also record that month’s accruals and other adjustments. Accruals are income earned but not yet received, and expenses incurred but not yet paid. The ledger is reviewed before the statements are produced.

No tax rule requires a monthly close. IRS Publication 583 does advise reconciling your checking account each month. It also says to update the books for items that appear only on the bank statement, such as service charges.

Your monthly closes matter for tax because your return is built from the books. Under the tax code, taxable income is computed under the method the business uses to keep its books. For a calendar-year business, the December close also helps total what each contractor was paid in the year. On accrual books, count each payment in the year it was made. Forms 1099-NEC for 2026 payments are due February 1, 2027, generally for each contractor paid $2,000 or more.

Closing a month is not the same as closing the accounts. Publication 583 describes closing the income and expense accounts at the end of each tax year. Until then, income and expenses keep adding up, so mid-year books show the year to date. Asset, liability and net worth (equity) accounts stay open from one year to the next.