Glossary
Compensating error
Two separate errors that cancel each other out.
What it means
Two or more errors that offset one another so the trial balance still agrees.
Example
An overcast of RM50 on one account and an undercast of RM50 on another cancel out.
Why it matters
Because they cancel, the trial balance does not reveal them.
In practice
A compensating error leaves the trial balance in agreement, so comparing total debits with total credits will not reveal it. It occurs when an error on the debit side is offset by an error of exactly the same amount on the credit side. It can only be found through careful checking or reconciliation.
Suppose the sales account is overcast by RM100 (an excess credit). Separately, the rent account is also overcast by RM100 (an excess debit). The two errors balance, the trial balance still agrees, and yet both accounts are wrong. Correcting them needs journal entries.
Students often confuse it with an error of original entry. There, one wrong figure is entered from the source document into both the debit and the credit. A compensating error involves two separate mistakes on opposite sides that happen to be equal in size.
If you can find errors but not name or correct them, one of our teachers can go through a full error-correction question with you. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 3.1 The trial balance (page 13); sub-topic 3.2 Correction of errors (page 13).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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