6.4.5 Compensating Errors

. . Compensating Errors When two or more errors are committed in such a way that the net effect of these errors on the debits and credits of accounts is nil, such errors are called compensating errors. Such errors do not affect the tallying of the trial balance.

For example, if purchases book has been overcast by Rs. , resulting in excess debit of Rs. , in purchases account and sales returns book is undercast by Rs. , resulting in short debit to sales returns account is a case of two errors compensating each other’s effect.

One plus is set off by the other minus, the net effect of these two errors is nil and so they do not affect the agreement of trial balance. . Searching of Errors If the trial balance does not tally, it is a clear indication that at least one error has occured. The error (or errors) needs to be located and corrected before preparing the financial statements.

If the trial balance does not tally, the accountant should take the following steps to detect and locate the errors : Recast the totals of debit and credit columns of the trial balance. Compare the account head/title and amount appearing in the trial balance, with that of the ledger to detect any difference in amount or omission of an account.