Compensating Errors Examples

Compensating errors happens while preparing trial balance, it happens when an error on debit side is compensated by an error on credit side and therefore it does not have any effect on the agreement of trial balance or in other words trial balance matches. Given below are some of the examples of compensating errors –

1. When purchase entry of $1000 is recorded on credit side and sales entry of $1000 is recorded on debit side.
2. When rent account is recorded $500 less on debit side while salary account is overcast by $500 and hence in the trial balance there won’t be any disagreement while actually it is wrong because one expense head is shown more whereas other expense head is shown less due to the mistake.
3. When an amount of $327 to be written on debit side is written as $237 and at the same an amount of $546 is written as $456 on the credit side.

Hence from the above examples one can see that these errors are far more dangerous than other errors like error of omission or error of commission