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Adding up

Do numbers rounded to the nearest £ need to add up?

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My accountant has prepared my annual financial statements. Some of the total figures do not add up, by £1, presumably because the a/c has just chopped off the decimals rather than rounding and then summing. See following example. Is this acceptable?

Creditors     1,001
Accruals     21,865
                  ----------
                  22,867

Replies (51)

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By Tim Vane
23rd Nov 2019 09:57

Well I wouldn't do it that way but really, who cares? The only person who is ever going to read those accounts is you. If it bothers you that much ask him to change it but otherwise why worry? Surely life has more pressing issues to take up your time.

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RLI
By lionofludesch
23rd Nov 2019 10:01

Not good enough for me.

Of course they should add up and balance.

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Psycho
By Wilson Philips
23rd Nov 2019 10:35

It doesn’t matter, but it’s sloppy - I would never issue accounts that do not add.

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By JDBENJAMIN
23rd Nov 2019 10:50

It find it annoying when people are sloppy like that, but there are more important things to worry about.

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By Treasure
23rd Nov 2019 11:02

Thanks all, the answer is clear!

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By johnhemming
23rd Nov 2019 11:38

Rounding errors are mathematically likely over time. The solution is to do the accounts to the penny.

I personally tend to be uncomfortable when things don't add up properly as it raises questions as to what is going on underneath the reporting process.

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Replying to johnhemming:
By Tim Vane
23rd Nov 2019 14:16

Utter tosh. Nobody presents accounts to the penny and rounding is a normal part of accounts presentation. You just have to round in a way that ensures the figures add up. It isn’t rocket science and most sets of accounts require a bit of rounding. Most decent accounts prep software will do it for you from an unrounded TB. I am quite surprised that you can get away with preparing accounts to the penny. Must look really daft. Do your clients not query it?

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Replying to Tim Vane:
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By johnhemming
23rd Nov 2019 15:28

I can live with rounding, but I don't like it.

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Replying to Tim Vane:
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By memyself-eye
23rd Nov 2019 18:56

Agreed - in 2019 are we really worried about pennies. Just look at SA returns for interest where HMRC round up to the nearest £.

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Replying to memyself-eye:
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By Matrix
23rd Nov 2019 19:29

I thought they rounded down.

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Replying to Matrix:
By SteLacca
29th Nov 2019 09:10

They always round in the taxpayer's favour, so round up reliefs and round down income.

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Replying to Tim Vane:
By Paul D Utherone
25th Nov 2019 10:04

Tim Vane wrote:

Utter tosh. Nobody presents accounts to the penny ...

I do recall one client who insisted, but it was a looooong time ago
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Replying to Tim Vane:
By Paul D Utherone
25th Nov 2019 10:06

Tim Vane wrote:

Utter tosh. Nobody presents accounts to the penny ...

I do recall one client who insisted, but it was a looooong time ago
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Replying to Paul D Utherone:
RLI
By lionofludesch
25th Nov 2019 10:14

Paul D Utherone wrote:

Tim Vane wrote:

Utter tosh. Nobody presents accounts to the penny ...

I do recall one client who insisted, but it was a looooong time ago

We used to prepare sole trader accounts in £sd but company accounts were rounded to the nearest pound. Mind you, a shilling was a significant sum in those days.

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Replying to johnhemming:
RLI
By lionofludesch
23rd Nov 2019 17:03

It's the software that's the problem. It's not good enough.

If you have four amounts ending in 75p, just round up three of them.

Not rocket science and is exactly what we used to do before computers came along.

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Replying to lionofludesch:
Hallerud at Easter
By DJKL
23rd Nov 2019 20:21

Agreed- TaxCalc had this habit throwing out balance sheets that did not square and then requiring 50p journals to tidy, though I think the issue may now have been sorted as recent use has not thrown up the issue- the problem is software coupled with the accountant not reviewing the end product prior to going to press.

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Replying to lionofludesch:
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By johnhemming
24th Nov 2019 07:50

It is a problem inherent in mathematics 1.33+1.33+1.34=4
If you round the first three items you get 1+1+1 and the total is 4.

As soon as you start messing around with the individual figures you are reporting something that is not actually true.

Hence I don't like rounding. I also don't like fiddling with the figures to make them fit.

But I don't really care. If my accountants produce my accounts I don't check them to the penny or pound. I look at the overall picture for reasonableness.

I did have some accountants in the 1990s who got my personal tax payable forecast out by 40K and they stopped being my accountants after that.

I can do paper accounts and a manual bank reconciliation, but I prefer to play the piano.

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Replying to johnhemming:
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By NH
24th Nov 2019 10:14

I can do paper accounts and a manual bank reconciliation, but I prefer to play the piano.

[/quote]
All at the same time? now that video would go viral!

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Replying to NH:
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By johnhemming
24th Nov 2019 11:02

Not at the same time, but here's a video of me playing the piano
https://www.youtube.com/watch?v=aF8C7T_VLak

Here is a video of me singing (the same song) and playing the guitar
https://www.youtube.com/watch?v=046x8TvU2Xk

And another video of Summertime if you are into those things
https://www.youtube.com/watch?v=MDSk3GtrVB0

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Replying to johnhemming:
Psycho
By Wilson Philips
24th Nov 2019 11:07

johnhemming wrote:

It is a problem inherent in mathematics 1.33+1.33+1.34=4
If you round the first three items you get 1+1+1 and the total is 4.


I don’t disagree. But one also needs to consider probabilities - it is unlikely that all numbers will be rounded in the same direction so more often than not the result is ‘correct’. And where it is not, there are very few accounts where an error of £1 or so is likely to be significant. Which is why it doesn’t matter if the accounts don’t quite balance but at the same time it does look sloppy.
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Replying to Wilson Philips:
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By johnhemming
24th Nov 2019 13:12

It is, of course, entirely a question of probabilities in that some of the figures reported in the set of all reported accounts with rounding either won't add up or will be wrong.

I don't like it because I like figures to balance (to the penny) as that gives some comfort that the process of calculation is more likely to be correct. However, it doesn't really matter.

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
24th Nov 2019 13:45

Given the prevalence of 99p endings to prices there may be a theory that smaller entities experience more rounding up within those nominal headings which are more exposed to retail prices and less exposed to wholesale prices, as business size (and therefore transaction volume) increases this effect may diminish. One could also develop a theory as to incidence in vat registered and non vat registered entities.

We certainly carry a greater probability in say Misc that it will need rounded up as we are not vat registered,it has few entries and more of the ones it does have do arise from retail purchases.

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Replying to DJKL:
Psycho
By Wilson Philips
24th Nov 2019 14:18

But you would need 51 of such items to make a difference. And only if individual items are rounded, which is not usually the case when preparing accounts.

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Replying to Wilson Philips:
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By johnhemming
24th Nov 2019 14:20

It becomes quite a problem when you have an accounting system which uses a floating point format of mantissa and exponent to store values and then rounds each one to the penny on reporting. This creates trial balances that wander around zero.

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Replying to johnhemming:
RLI
By lionofludesch
24th Nov 2019 14:28

johnhemming wrote:

It becomes quite a problem when you have an accounting system which uses a floating point format of mantissa and exponent to store values and then rounds each one to the penny on reporting. This creates trial balances that wander around zero.

Only because the software isn't good enough.

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Replying to lionofludesch:
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By johnhemming
24th Nov 2019 15:31

Once you have made the decision to use a floating point number to store currency with a decimal place the rest follows regardless of how well the rest of the software is written.

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Replying to johnhemming:
RLI
By lionofludesch
24th Nov 2019 16:03

Rubbish, John.

Is it not possible to write a routine to do what we used to do in the pre-computer age and round so that the colums add up ? I would suggest that it is.

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Replying to lionofludesch:
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By johnhemming
24th Nov 2019 19:10

The point about exponents and mantissas is a different point about rounding to that one. I remember looking at a system (written by someone else) for a firm of solicitors that had a wandering trial balance because of using floating point arithmetic.

Here is a bit more about floating point numbers:
https://www.doc.ic.ac.uk/~eedwards/compsys/float/

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
24th Nov 2019 14:40

No not individual rounding, nominal total rounding- if you have 20 entries in Misc all ending with 99p you have a total ending 80p which will round up, you need 51 entries at 99p to get to a total that ends with less that 50p, for a smaller non vat registered business those nominals with a higher proportion of retail purchases need a lot of entries to get to a position where they might round down, smaller entities tend to have fewer transactions therefore are skewed within certain nominals to more likely need their total rounded up rather than down, this skew diminishing the more accounting entries the business has.

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Replying to johnhemming:
RLI
By lionofludesch
24th Nov 2019 14:23

johnhemming wrote:

It is a problem inherent in mathematics 1.33+1.33+1.34=4
If you round the first three items you get 1+1+1 and the total is 4.

As soon as you start messing around with the individual figures you are reporting something that is not actually true.

Hence I don't like rounding. I also don't like fiddling with the figures to make them fit.

Well, it all depends on your prorities, I suppose.

With a VAT fraction of a sixth, it's much harder to be entirely accurate.

Personally, I'd rather have accounts that just add up. Makes me look less of a fool.

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Replying to lionofludesch:
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By johnhemming
24th Nov 2019 15:41

For tax purposes and things like payment of dividends or interest there tend to be formal rules as to how to round the result of a calculation into currency. That is part of the calculation.

This exists for VAT
https://www.gov.uk/hmrc-internal-manuals/vat-trader-records/vatrec12030

SDRT is rounded up to the nearest penny and Stamp Duty on shares to the nearest £5.
https://www.hl.co.uk/help/tax-information/tax-facts/stamp-duty/what-is-t...

There are also other odd rounding rules.

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Replying to johnhemming:
RLI
By lionofludesch
24th Nov 2019 18:10

johnhemming wrote:

For tax purposes and things like payment of dividends or interest there tend to be formal rules as to how to round the result of a calculation into currency. That is part of the calculation.

This exists for VAT
https://www.gov.uk/hmrc-internal-manuals/vat-trader-records/vatrec12030

SDRT is rounded up to the nearest penny and Stamp Duty on shares to the nearest £5.
https://www.hl.co.uk/help/tax-information/tax-facts/stamp-duty/what-is-t...

There are also other odd rounding rules.

Lovely.

But nothing to do with issuing accounts that don't add up.

These rounding "problems" are all about bone idleness.

PLC accounts are typically rounded to the nearest thousand pounds.

Has anyone ever found any that don't add up ?

Thought not .......

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Replying to lionofludesch:
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By johnhemming
24th Nov 2019 19:07

lionofludesch wrote:

Lovely.

But nothing to do with issuing accounts that don't add up.


However, it is relevant to your post about rounding VAT.

I suppose I worry about rounding a bit more because I have to make sure I use the legally required rounding formula for calculations. For example writing code to calculate correctly the various elements for a stock exchange transaction (say a EuroBond) has to come out with the right answer each time (including accrued interest).

Market secondary information such as this:
https://www.youinvest.co.uk/market-research/LSE:FXPO

Quotes figures rounded to the nearest 10K and that is practical. I would expect, however, that the original data is to the penny (or possibly dollar in this example) and that figures are not bodged with an adjustment of 10K to force the rounded figures to add to a total or sub total.

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Replying to johnhemming:
RLI
By lionofludesch
24th Nov 2019 22:23

Yes - but that's about the parameters to which you work.

The OP is about presentation, pride in the job, not presenting accounts to clients as though they'e been jotted down on the back of a fag packet.

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Logo
By marks
24th Nov 2019 17:45

Amazing that for a post that is really irrelevant in the big picture that it can gets so many posts.

Probably more to do with us as accountants and how we think than anything else.

At the end of the day your clients dont care.

If you asked them what would you like me to do;

1. Check that your accounts balance exactly to the £1
2. Do some tax planning that could save you at least £1k.

I know which they would chose.

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Replying to marks:
RLI
By lionofludesch
24th Nov 2019 17:55

Standards, marks, standards.

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Replying to lionofludesch:
Logo
By marks
29th Nov 2019 00:06

It not material.

I expect my software does the rounding to ensure accounts add up but dont check.

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Replying to marks:
Psycho
By Wilson Philips
24th Nov 2019 18:08

I wonder how much valuable tax planning one can get done in 1 minute?

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
24th Nov 2019 18:33

The defining truth accountants learn, save client money on tax and you are loved (well at least liked) ,advise them about a shortfall in accounting/auditing and clients could not care less.

I do like balanced accounts, non balanced accounts are an affront to my sensibilities, but I do know that clients could not care less and tidying the software generated version was time I spent for my obsession not at the behest/need of a client (strictly the minute to post the 50p journal ought to be non chargeable)

It is similar to spotting a painting that is hanging squint, once noticed your eye keeps going back to it .

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Replying to DJKL:
Psycho
By Wilson Philips
24th Nov 2019 19:11

DJKL wrote:

It is similar to spotting a painting that is hanging squint, once noticed your eye keeps going back to it .


Or a sloping horizon. Does it matter to the holidaymaker uploading a snap from their phone to Facebook? Of course not. Does it matter to the professional photographer? Absolutely.
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Replying to Wilson Philips:
Logo
By marks
29th Nov 2019 00:08

Did some planning today around dividend advice.

Potentially saved the client £4k.

Took about a 3 minutes to do the calculations.

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Replying to marks:
Psycho
By Wilson Philips
29th Nov 2019 07:31

Good for you

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By Matrix
24th Nov 2019 20:39

34 posts and no one has asked Treasure whether the balance sheet balances......

IMHO presenting these accounts to a client is unprofessional. I would be embarrassed if my client had to point this out to me and would go back to my software to see what happened. I would hope, though, that I could trust my professional software and would change if this was an issue.

There is often rounding from the TB to the accounts, in fact my software rounds in the uploaded TB so it has to net to nil. There must be an issue with the OP’s accountant’s software or they are using some old templates.

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Replying to Matrix:
Hallerud at Easter
By DJKL
25th Nov 2019 10:18

As I said up the page, I would in the past post my TB into TaxCalc (I post the TB with pennies as I post the ETB inc pennies) and the accounts it produced might not balance, the cure usually being a 50p dividend to Misc, this was maybe about a couple of years ago. These days I have not noticed the issue which suggests some update to the software cured the issue or I have been very lucky with all my roundings.

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By atleastisoundknowledgable...
29th Nov 2019 08:25

FFS. 1.33+1.33+1.34=4 means 1+1+1=4.

Who the hell cares? Manually reduce the 4 to 3 and move the extra 1 to purchases*. Simples.

To answer the original question, I wouldn’t dream of sending out accounts that didn’t add-up. The hours I’ve spent chasing £1 around formulated spreadsheets for mgmts...

(* other nominals are available, where movement of £1 wouldn’t be noticed).

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Replying to atleastisoundknowledgable...:
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By johnhemming
29th Nov 2019 09:40

Your solution, however, is to adjust the accounts so they are not reporting what they should report.

I think the conclusion is to report to the right number of decimal places and any summaries should be rounded without adjustments.

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Replying to johnhemming:
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By atleastisoundknowledgable...
29th Nov 2019 09:50

johnhemming wrote:

Your solution, however, is to adjust the accounts so they are not reporting what they should report.

I think the conclusion is to report to the right number of decimal places and any summaries should be rounded without adjustments.

Alas, I think that you’re alone in this. It’s the precise mindset of an IT bod, rather than the realistic mindset of an accountant in practice.

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Replying to atleastisoundknowledgable...:
Psycho
By Wilson Philips
29th Nov 2019 10:20

Agreed.

Although another solution, which should satisfy both John and the accountants (not that I’m suggesting that any of us should adopt it), would be to have an additional line or lines for rounding adjustments.

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Replying to johnhemming:
RLI
By lionofludesch
29th Nov 2019 10:31

johnhemming wrote:

Your solution, however, is to adjust the accounts so they are not reporting what they should report.

I think the conclusion is to report to the right number of decimal places and any summaries should be rounded without adjustments.

Gerrawaywithi.

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By ste_gunn
29th Nov 2019 10:44

Non-accountants would find this discussion hilarious...I found it fascinating!

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