Definition of Rounding Amounts on Financial Statements
Rounding the amounts on a company’s financial statements means dropping the less important digits in order to emphasize the most important digits. This allows the financial statements to be more attractive and easier to read especially when the amounts for each of two or three years must be shown.
Example of Rounding Amounts on Financial Statements
Imagine looking at a company’s income statement without rounded sales amounts for the most recent three years: $1,512,989.63……$1,321,026.98……$1,265,876.22.
Now look at the amounts rounded to the nearest thousand: $1,513……$1,321……$1,266.
At the top of the financial statement you must also state “In Thousands”.
Not only are the amounts easier to read, it is easier for the reader to spot a trend.
Mid-size companies are likely to round the round the financial statement amounts to the nearest thousand, while large corporations are likely to round to the nearest million.
Rounding is acceptable because of the accountant’s concept of materiality. That is, rounding is acceptable as long as the rounded amounts do not mislead a current or potential investor, lender, or other person making a decision with the amounts being reported.
