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If my car insurance was £1200.01 per year, I could end up being charged £100 + 1/12p per month. I know that's not how it works, the extra penny is kept whole and goes on a specific month instead.

What I don't know is how the month that gets the extra penny is decided. Is there a standard accounting practice for dealing with this? For example are all the "leftover" pennies worked out in advance and added to the first payment, or are they gathered up at the end making the final payment one penny more or less?

I'm writing a simple accounting package as a hobby software project so if there's a generally-accepted practice for dealing with this kind of "rounding errors" I'd like to follow it.

Many thanks in advance.

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3 Answers

For your example, I agree with littleadv. I find with mortgages I've had that the payment would be rounded up, not down, and the extra penny fraction reduces the final payment by as much as a few dollars depending on term and rate.

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It's either the last or the first payment. From my experience with splitting charges among friends in restaurants, it's usually the last one that gets the extra/less pennies.

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Typically when this happens to me, the payments are enumerated specifically. For example, a payment plan I had for a medical bill specified "Two payments of $66.66 and one of $66.68" to deal with the exact penny amount of the bill. You'll probably therefore want to allow the user to adjust specific payments that don't match the rest of the set, since they'll likely have paperwork detailing which payment is unusual.

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