What is Rounding?

Definition: Rounding is the act of reducing the digits in a numerical value.

In accounting, rounding means reducing the number of decimals important in a number by “rounding” the number to the nearest value, either up or down.

In working with numbers, rounding may be necessary in order to “rewrite” a figure to a more suitable value.

It can be difficult to work with figures that have too many digits, and therefore rounding may be necessary. In accounting, it is usually cost amounts that need to be rounded.

Traditional rules for rounding

In general, the last digit in a value will be rounded. If you e.g. want to round to two decimals, you should round off the third decimal, and if you want to round to three decimals, you should round off the fourth decimal, and so on.

If the decimal you wish to round is over 5, you will round the preceding decimal upwards 1. However, if the decimal is less than 5, you will not adjust the preceding decimal, 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, it should be rounded up, and the preceding figures should be adjusted accordingly.

If the digit is 0, 1, 2, 3 or 4, the figure should be rounded down and deleted, with no adjustment to the preceding figure.

Rounding example

If e.g. you wish to round to two decimals for an even cost calculation, it might look like this: 4.6372 becomes 4.64 since 2 is deleted as it is less than 5, and 7 rounds the preceding 3 to 4 because it is greater than 5.

Another example is 17.642 rounded to one decimal, which will become 17.6 because both 4 and 2 are less than 5 and are therefore deleted without any other adjustments.