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Rounding - What is rounding?

Definition: Rounding is when you “round off” by reducing the digits in a numerical value.

In accounting, rounding is when you reduce the number of decimal places that are important in a number and in turn “round” the number to the nearest value either up or down.

In any work with numbers, rounding is sometimes necessary in order to “rewrite” a figure to become a more suitable value.

If a number has too many digits, it can be difficult to work with and therefore rounding may be necessary. In an accounting sense, it is usually cost amounts that need to be rounded.

Rules for traditional rounding

Generally, the last digit in a value will be rounded. If you e.g. want to round to two decimal places, you should look at the third decimal to round. If e.g. you want to round to three decimal places, you should look at the fourth decimal to round, etc.

If the number at the decimal place that you will round is over 5, then you will round the preceding number upwards 1. On the other hand, if the number is less than 5, you will not adjust the preceding numbers, but instead just delete the posterior digits up to decimal you want to round to.

So if the digit to be rounded is 5, 6, 7, 8 or 9, then the figure should be rounded up and the preceding numbers should be adjusted accordingly.

If the digit is 0, 1, 2, 3 or 4, then the figure should be rounded down and this digit deleted.

Rounding example

For example, if you would like to round to two decimal places for an even cost calculation, it could look like this: 4.6384 becomes 4.64 since 4 is deleted since it is less than 5, and 8 is greater than 5 and therefore rounds the preceding 3 to 4.

Another example would be that 17.642 rounded to one decimal place will become 17.6 because both 4 and 2 are less than 5, and therefore nothing needs to be done other than deleting those digits.