What is meant by compensating error? Explain with an example.

Asked by Topperlearning User | 26th Jul, 2016, 01:33: PM

Expert Answer:

When two or more errors occur in such a way that the net effect of these errors on the debits and credits of respective accounts are nil, it is known as compensating errors.

For example, on2nd March, 2016, a sum of Rs.2,000 paid to Ashok was posted as Rs.200 to his account on the debit side and on 26th March, 2016, a sum of Rs.200 paid to Dipesh was posted as Rs.2,000 to his account on the debit side.

In the first transaction, Ashok’s a/c was undercast by Rs.1,800 on the debit side and in the second transaction Rs.1,800 on the debit side. Hence, the net effect of these transactions is zero.

Answered by  | 26th Jul, 2016, 03:33: PM