Which type of error occurs when an error on the debit side is compensated by an equal error on the credit side elsewhere?

Which type of error occurs when an error on the debit side is compensated by an equal error on the credit side elsewhere?

• A. Error of original entry
• B. Errors of principle
• C. Compensating errors
• D. Errors of complete omission

Answer: (C)

Compensating errors happen when one incorrect posting on the debit side is matched by an equal incorrect posting on the credit side in another part of the records. Because the extra amounts on both sides cancel out, the trial balance still balances, but the individual account balances are wrong. For example, a sale might be recorded with a debit to accounts receivable and a credit to sales for the same wrong amount in two places, so the totals balance yet the postings are misstated. This is different from an error of original entry (where a wrong amount is posted in both sides of the same entry), an error of principle (misclassifying the nature of a transaction), or an error of complete omission (a transaction is not recorded at all).

Compensating errors happen when one incorrect posting on the debit side is matched by an equal incorrect posting on the credit side in another part of the records. Because the extra amounts on both sides cancel out, the trial balance still balances, but the individual account balances are wrong. For example, a sale might be recorded with a debit to accounts receivable and a credit to sales for the same wrong amount in two places, so the totals balance yet the postings are misstated. This is different from an error of original entry (where a wrong amount is posted in both sides of the same entry), an error of principle (misclassifying the nature of a transaction), or an error of complete omission (a transaction is not recorded at all).