Good bookkeeping should tell you what the business earned, what it owes, and which records support the tax return. A consistent monthly close reduces year-end guesswork and helps spot missing receipts, unpaid liabilities, and owner transactions before they accumulate.
A bank feed is a starting point, not finished books. Imported transactions can be duplicated, miscategorized, or incomplete. Reconcile accounts to statements and retain evidence of the business purpose, not just the payment.
1. Gather the records and reconcile cash
Collect statements for every bank, credit card, loan, and payment processor account, including dormant accounts. Reconcile the ledger to each statement's ending balance; investigate missing transfers, duplicate imports, outstanding checks, and uncleared deposits. Do not force a balance with an unexplained adjustment.
Transfers between your own business accounts are not sales or expenses. Match both sides. A credit card payment settles a liability; the underlying purchases are what need expense or asset classification.
2. Review income, bills, and owner transactions
- Customer activity: Match receipts to invoices, review overdue balances, and reconcile processor settlements. Cash and accrual methods recognize items differently; use the business's adopted method consistently.
- Vendor activity: Attach invoices and receipts, review unpaid bills, and distinguish operating expenses from equipment, deposits, prepaid costs, and inventory.
- Owner activity: Separate contributions, draws or distributions, documented loans, wages, and reimbursements. Personal expenses paid by the business do not become deductions merely because the business paid them.
- Borrowing: Record loan proceeds as liabilities rather than sales, and split repayments between principal and interest. Keep loan statements and agreements.
Document mixed-use costs with a defensible business allocation. For vehicle and travel costs, retain the details required for the expense, such as dates, mileage, destination, and business purpose. A bank statement alone may not establish deductibility.
3. Check payroll, contractors, and tax liabilities
Reconcile payroll reports to wages, employer taxes, benefits, employee withholding, and actual deposits. Employee withholding is a liability, not extra employer expense. Net pay alone does not capture the complete payroll entry.
For contractors, obtain the appropriate tax documentation, commonly Form W-9 for U.S. payees, securely before year-end. Review worker classification, payment method, and the applicable year's information-return rules. Payments settled by card or a third-party network can have different reporting treatment; do not automatically issue a 1099-NEC for every vendor payment.
Reconcile sales tax collected and remitted, Washington excise filings, and payroll tax balances to supporting returns. Filing a return and paying the balance are separate tasks. Owner-level estimated income tax payments should not be casually categorized as an operating expense.
4. Update inventory, assets, and supporting schedules
Track inventory movements, returns, write-offs, and physical counts. Maintain an equipment register showing purchase date, cost, financing, placed-in-service date, business use, and disposals. Whether a purchase is expensed or depreciated requires a tax review, not just a software category.
Review loans, owner equity, prepaid expenses, and other balance sheet accounts. A profit and loss report can look reasonable while the balance sheet contains duplicate debt, negative inventory, or missing payroll liabilities.
5. Review the results and close the month
- Compare the profit and loss report and balance sheet with the prior period; explain large or unusual changes.
- Resolve uncategorized transactions and negative clearing accounts, rather than carrying unexplained balances indefinitely.
- Confirm upcoming filing and payment dates, and set aside cash based on a tax projection rather than an arbitrary share of deposits.
- Save reconciliations, supporting statements, and reviewer notes. Back up the accounting file or retain usable exports and restrict who can change closed periods.
6. Retain records and prepare the CPA handoff
Retention depends on the record and the applicable limitation period; there is no universal rule to delete everything after three years. Keep employment tax records for at least four years. Asset basis records may need to be retained through disposal and the relevant period afterward; state rules or disputes can require longer retention.
A useful handoff includes a reconciled trial balance, financial statements, general ledger, bank reconciliations, payroll filings, asset and loan schedules, inventory support, prior returns, and unresolved questions. Use a secure portal rather than unsecured email for identity, bank, and payroll documents.
Official sources
- IRS: Recordkeeping
- IRS: Record retention
- IRS: Employment tax records
- IRS: Publication 583, Starting a Business and Keeping Records
Related reading
E-commerce bookkeeping and taxes | Business startup checklist | Small-business tax preparation