How often should a small contractor reconcile its bank, card and loan accounts?

Every month, as part of the close

Only when the balance looks wrong

Lena's bank statement ends at $21,640, but the books show $22,415. What should she do?

Find what makes up the $775 gap before she closes the month

Change the book balance to match the bank and move on

Leave it, since small gaps even out over the year

Note it and let the tax pro sort it out in the spring

How long does the IRS say to keep employment tax records?

At least 4 years after the tax is due or paid, whichever is later

Ray sells a striping machine he bought years ago. How long should he keep its purchase and depreciation records?

Until the IRS review period ends for the tax year he sells it

3 years from the day he bought it

Ray uses the IRS standard mileage rate. He drives 200 business miles in August 2026. What's the mileage deduction?

Nothing, unless he has fuel receipts

Ray finishes and invoices a job in October and gets paid in December. In cash-basis books, when does the income show up?

When the job was booked in the spring

Carol's bookkeeper does all the entries and reconciliations. What's Carol's part in the monthly close?

Review the reconciliations and the profit and loss, and ask about anything odd

Nothing; that's what she pays the bookkeeper for

Redo every entry herself to be safe

Look at the books once a year with her tax pro

Lesson B101.3 · Business Finance 101: Run It Clean

Bookkeeping a banker can read

5-minute read · Figures for tax year 2026

A person types on a laptop showing a spreadsheet beside a shelf of binders — Photo: Mikhail Nilov / Pexels, Pexels License

The short answer

Keep books that track income and costs by job and by service line, and record every receipt with its job the day you get it. Close every month by the 15th: reconcile every account to its statement, read the profit and loss, and review who owes you. A bookkeeper can do the entries, but the owner still reviews the close.

Set up books that follow the work

First, the method. Cash-basis books record income when the money arrives and costs when you pay them. Accrual books record income when you bill and costs when you owe them. Cash is simpler. Accrual shows which month earned what, which helps when a customer pays in 45 days and your supplier bills on 30-day terms. Your tax pro picks the method for your tax return. Ask whether your software can run reports both ways.

Then the account list (the chart of accounts). Build it around the work you do:

Group	Example accounts
Income, by service line	Sealcoating, crack repair, striping, snow and ice, pressure washing
Direct job costs	Materials, crew wages, payroll taxes and workers' comp, equipment, fuel, subcontractors, disposal
Overhead	Insurance, office, phones, software, bookkeeping, marketing, shop rent

Tag every income and cost line with its job. Then one report shows what each job made (B101.4), and another shows which service lines carry the business.

Close every month by the 15th

The monthly close is six steps:

Enter or import every transaction for the month, tagged by job.
Reconcile every bank, card and loan account to its statement.
Read the profit and loss by service line, against last month and the same month last year.
Review receivables: who owes what, and for how long. Call on anything past due.
Look ahead 30 days at bills, payroll and tax dates.
Lock the month so old entries can't change by accident.

Example (made-up numbers). On the 10th, Lena closes September for her company. The bank statement ends at $21,640. The books say $22,415. The $775 gap turns out to be a $750 customer check that bounced and a $25 returned-check fee nobody recorded. Without the reconciliation, the books would show $775 that isn't there, and nobody would have called the customer.

A bookkeeper can do the entries and the reconciliations. You still review the close: look over the reconciliations, read the profit and loss, and ask about anything you don't recognize. Write the checklist down so the close doesn't live in one person's head.

Receipts, miles and how long to keep records

Photograph every receipt the day you get it and note the job. If you use the IRS standard mileage rate for a vehicle (your tax pro can tell you whether you can), log the date, miles, where you went and why. For 2026 the rate is 72.5 cents a mile from January 1 to June 30, and 76 cents from July 1 to December 31.

Here's how long the IRS says to keep records:

Record	How long
Most tax records	3 years after you file the return
Employment tax records	At least 4 years after the tax is due or paid, whichever is later
Equipment and vehicle records	Until the IRS review period ends for the tax year you sell or scrap it, usually 3 years after you file that return

The IRS lists a few longer periods too. Before you shred anything, ask your tax pro.

Your Move

Do this week

Pick your close date, the 15th or sooner, and put it on the calendar for every month.
Write the six-step close checklist and put a name next to each step.
Close last month: reconcile every account, read the profit and loss, and list everyone who owes you.
If you have a bookkeeper, set a 30-minute review with them on close day.

Log it: Monthly close set.

Common questions

What bookkeeping software should I use?

Pick one that pulls in your bank feeds, tags income and costs by job, works with your payroll, gives your bookkeeper and tax pro their own logins, and lets the crew photograph receipts. Ask your tax pro what they work with.

Can I catch up the books once a year at tax time?

Your return may get filed, but you'll run the season blind, and a mistake from last March is hard to find in January. A monthly close catches it while people still remember.

Do I still need to look if I have a bookkeeper?

Yes. You know the jobs; the bookkeeper knows the entries. Spend 30 minutes a month on the reconciliations and the profit and loss.

Watch out for

Accounts that never get reconciled. The balance on the screen can be wrong for months.
Bank feeds that guess the category. A sealer order filed as office supplies throws off your job costs.
One person who enters the bills and also approves every payment, with no one else looking.

Free help

IRS: How long should I keep records?
IRS: Standard mileage rates
America's SBDC: Find your SBDC for free business consulting
SCORE: Free business mentoring

Free practice

Lesson check

5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.

This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.

Sources

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