Though Closed Sales Order may still appear on Sales Order By Customer Report, we can can customize the filter.
Here are the steps:
1. Navigate to Reports > Sales Orders > Sales Order by Customer > Customize
2. Edit Columns : Bookings folder > add Validated Status
3. Filters: In the Choose Filters page > Highlight Validated Status field and add the status Closed so the filters will be: Cancelled, Pending Approval, Closed
4. Click Add
5. Save or Preview
After setting these filters Closed orders will no longer appear on Sales Order by Customer Report