When the error in one account is automatically being corrected with the error in other account by chance then it is called compensating error. The compensating errors may occur due to following reasons:-

  • Posting of less amount in any account  may be compensated with the under-casting of other account.  For example the purchase  was posted less by Rs.10000/= in debit side  purchase account  but by chance the total of  credit side of sales account was also done less by Rs.10000/=.  Similarly, the excess amount posted in any account can be compensated by under-casting the total of same account or other account.
  • Non-posting of the amount of any entry in the account but the excess amount posted in the same side of any other account also may neutralize the difference. For example the sale bill of Rs.15000/= was not posted in debit side of a debtor’s account was compensated by excess posting of Rs.15000/=  debit side of Printing & Stationery Account.
  • Totaling of debit side done in excess of any account can be compensated by excess totaling of credit side of other account.
  • Under-casting of credit side of an account may be compensated by under-casting of credit side of other account.

These are the few reasons of compensatory errors but there may be so many reasons of compensatory error which can not be defined and that can be seen in practical life only by an accountant.

Compensating errors do not affect the trial balance because these types of mistakes always remain in accounting information, though the totals credit and debit side of the trial balance are equal. The accountant can find out these mistakes only by thorough scrutiny of accounts.

For example a creditor’s account is showing debit balance of Rs.10000/=.  It is a matter of doubt because normally the balance of creditor’s account is shown as credit balance. The accountant must see the details of that account properly and make sure that the balance is correct.  After applying the similar type of practice on other doubtful accounts, the compensatory mistakes can be traced out.