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Fundamentals of accounting
Fundamentals of accounting

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2.4 Rounding

For most business and commercial purposes the degree of precision necessary when calculating is quite limited. While engineering can require accuracy to thousandths of a centimetre, for most other purposes tenths will do. When dealing with cash, the minimum legal tender in the UK is one penny, or £00.01, so unless there is a very special reason for doing otherwise, it is sufficient to calculate pounds to the second decimal place only.

However, if we use the calculator to divide £10 by 3, we obtain £3.3333333. Because it is usually only the first two decimal places we are worried about, we forget the rest of them and write the result to the nearest penny of £3.33.

This is a typical example of rounding, where we only look at the parts of the calculation significant for the purposes in hand.

Consider the following examples of rounding to two decimal places:

1.344 rounds to 1.34

2.546 rounds to 2.55

3.208 rounds to 3.21

4.722 rounds to 4.72

5.5555 rounds to 5.56

6.9966 rounds to 7.00

7.7754 rounds to 7.78

Rule of rounding

If the digit to round is below a 5, round down. If the digit is 5 or above, round up.

Activity 3 Use of rounding

Part A

Round the following numbers to two decimal places:

  1. 0.5678
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Answer

0.57

  1. 3.9953
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Answer

4.00

  1. 107.356427
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Answer

107.36

Part B

Round the same numbers as above to three decimal places:

  1. 0.5678
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Answer

0.568

  1. 3.9953
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Answer

3.995

  1. 107.356427
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Answer

107.356