Chapter 13 — Month-End and Year-End Close Checklists

Month-End and Year-End Close Checklists

Good books aren’t maintained by heroic annual efforts. They’re maintained by small routines, performed on schedule: a monthly close that keeps every period honest, and a year-end close that turns a year of books into a tax return.

The monthly close routine

Do this in the first week or two after each month ends. A few focused hours, twelve times a year, buys you constant knowledge of where you stand.

• 1. Reconcile everything. All bank accounts and credit cards matched to the statements, differences resolved. Lock each reconciled period so it can’t be edited later.
• 2. Review accounts receivable. Run the AR aging report; every past-due invoice gets its collections step, and record write-offs for invoices you’ve given up on.
• 3. Review accounts payable. Run the AP aging report, confirm what’s due, schedule payments, capture early-payment discounts. Nothing overdue without a reason and a plan.
• 4. Record recurring and adjusting entries. Monthly depreciation, amortization of prepaid insurance, accrued wages and interest. If you use standard recurring entries in your software, review them rather than re-creating them — but review them.
• 5. Review the profit & loss. Ask three questions: anything missing? (the quarterly insurance bill, the annual subscription); anything surprising? (an expense double its normal size); anything misclassified? (the big purchase sitting in an expense account that should have been capitalized). Compare to last month and the same month last year — your eyes are the last control.
• 6. Scan the balance sheet. Check cash, receivables, payables, loan balances, equity. A negative asset or liability is almost always an error; investigate any balance that’s wildly different from last month.
• 7. Back up and lock. Back up your data, lock the closed month, and jot a brief memo — “March includes the $3,200 roof repair, coded to building maintenance.” Future you, and your CPA, will be grateful.

The year-end close routine

December’s close is the monthly routine plus the work that turns a year of books into a tax return. Start early — the best time to prepare is November, not the second week of January.

1099s. If you paid contractors, freelancers, or certain vendors for services, you must report those payments on Form 1099-NEC or 1099-MISC. For 2026, the reporting threshold is $2,000 — raised from the old $600 threshold under the One Big Beautiful Bill Act, and indexed for inflation starting in 2027. (Confirm thresholds before filing.) In November, list every service vendor paid $2,000 or more, confirm you have a Form W-9 on file for each (name, address, taxpayer ID) — this is why you collect W-9s before the first payment — then file the 1099s with the IRS and furnish copies to recipients by the January deadlines (January 31 for NECs). Penalties start small per form and scale up fast.

W-2s. Verify every employee’s name, Social Security number, address, total wages, and withholding. Reconcile total W-2 wages to your quarterly Forms 941 — they must agree. File W-2/W-3 with the Social Security Administration and furnish copies to employees by January 31.

Closing entries. Income and expense accounts are temporary — they reset each year. Closing entries zero them out and move the net result into retained earnings (or owner’s capital). Most software does this automatically, but understand what it’s doing: next year’s P&L starts at zero while the balance sheet carries forward.

Fixed assets and depreciation. Update the fixed asset register: add this year’s purchases, remove disposed assets, confirm depreciation. Flag major purchases for the Section 179 / bonus depreciation conversation with your CPA — some elections require decisions before the return is filed.

Count inventory. If you carry inventory, the year-end physical count is non-negotiable — it’s what makes your annual COGS (and taxable income) correct. An estimated count is barely better than none.

Gather the tax package. Full-year P&L and balance sheet, general ledger (or software access), year-end bank and loan statements, fixed asset register, payroll filings (941s, W-2s, 940), filed 1099s, and documentation for unusual transactions. A complete package means a faster return, a lower preparation bill, and fewer follow-up questions in March.

Plan — don’t just report. Look forward with your CPA: estimated payments for next year, retirement contributions with year-end deadlines, equipment purchases worth accelerating or deferring, law changes on the horizon. The return reports what happened; the planning meeting shapes what happens next.

The calendar that runs itself

• Weekly: record transactions, photograph receipts, review the week’s cash.
• Monthly: the close routine — reconcile, review AR/AP, adjust, review P&L, lock.
• Quarterly: estimated tax payments, payroll filings (941), a deeper P&L review.
• Annually: the year-end routine — 1099s, W-2s, closing entries, inventory count, tax package, planning meeting.

Businesses that follow this calendar don’t have tax seasons. They have a tax appointment — a calm meeting where the numbers are already done.

The November head start

The smoothest year-ends start in November. Chase missing W-9s while vendors are responsive, not in the January rush. Verify employee names, addresses, and Social Security numbers before the year turns — fixing a W-2 in February is ten times the work of fixing the record in November. Review the fixed asset list and flag big purchases for the depreciation conversation. Estimate the year’s profit from eleven months of clean books — you can still act: time a purchase, make a retirement contribution, adjust the final estimated payment. In January, those options are gone. Schedule the planning meeting with your CPA for late November or December, separate from the return-preparation meeting.

A note on quarterly estimated taxes

Most small business owners have no employer withholding taxes — but the IRS still expects its money during the year, in quarterly estimated payments (generally due in April, June, September, and January). Underpay significantly and you’ll owe penalties at filing time, even if you pay by April. Accurate payments require knowing your quarterly profit — which requires current books. The owner with a monthly close computes each quarter’s income in an afternoon and pays the right estimate; the owner with a shoebox guesses, and guessing wrong costs money either way.

Key takeaways

• Monthly close: reconcile, review AR/AP aging, post recurring adjustments, review the P&L for missing/surprising/misclassified items, scan the balance sheet, back up and lock.
• Year-end adds: 1099s (threshold $2,000 for 2026 under the One Big Beautiful Bill Act, indexed from 2027 — collect W-9s before first payment), W-2s reconciled to 941s, closing entries that reset income/expense accounts into equity.
• Count inventory at year-end; update the fixed asset register; assemble a complete tax package for your CPA.
• Use year-end for forward planning: estimates, retirement contributions, equipment timing.
• Weekly, monthly, quarterly, annual rhythms turn tax season from a crisis into an appointment.