Method for Rounding Figures on Financial Statements

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There is no hard-and-fast rule for whether or how to round the figures presented in a company's financial statements. But rounding does fall under the accounting profession's "materiality principle" -- any rounding that occurs must not mislead readers of the financial statements.

Enhancing Comprehension

Companies round the figures in their financial statements to make them easier to read, compare and interpret. They're trading a little precision for the sake of comprehension. Say you have three annual revenue figures: $1,230,634.54, $1,611,298.20, and $1,486,719.22. Readers can more readily zero in on the differences if you round them to $1,231, $1,611 and $1,487 and include a note saying that the figures are rounded to the nearest thousand.

Upholding Materiality

The materiality principle guides how companies choose to round their figures. A giant multinational corporation whose balance-sheet accounts are in the tens of billions of dollars could round to the nearest million (or even 10 million) without significantly affecting readers' understanding. For a small business, though, even rounding to the nearest thousand might significantly distort the numbers. Taking $1,600 up to $2,000, for example, inflates the figure by 25 percent.

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