In the real world, numbers are never perfect. Especially numbers that represent dollar amounts. So in accounting, when you record journal entries, what do you do when a number has a decimal? For instance, you record trading 4000 cash for 15 months of prepaid rent on 12/1/2010. And the adjusting entry for that period will include revenue recognition of 1 month of rent, which will amount to 4000/15, which is $800/3.
I mean, if the reporting period was every 3 months, then it would be easy to record 3 months of rent as $800. But if I was reporting just one month, what do I do to account for the ugly fraction? Do I just round to a whole number? Do I round to the nearest cent? What?
Update:Sorry, I meant to say "expense recognition", not revenue. You expense the prepaid asset as you use it, since it is a deferred expense. Again, I apologize for the mistake.
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You can round off - financial statements never show pennies. Its the concept of materiality.
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