When Two Or More Errors Are Committed In Such A Way That The Effect Of One Error Is Compensated By Another Error. Which Kind Of Error Is This?

When two or more errors or the sum of more than one error cancels the accounting effect of each other, it is called a compensating error as the effect of wrong amount of debit and the same wrong amount of credit cancels each other effects and hence Trial Balance agrees.

For example, if sales of $1000 to Mr. A on account is entered in Mr. A (debit) as $100 and purchases of $1000 to Mr. B is entered in Mr. A (credit) as $100. In this case, the posting of wrong amounts to debit and credit side in the ledger’s accounts cancel the effects of each other and as a result the trial balance agrees but there is a compensating error. On the debit side there is a shortage of $900 ($1000 - $100) which is compensating by another shortage of credit of $900.