Compensating error definition
/What is a Compensating Error?
A compensating error is an accounting error that offsets another accounting error. These errors can be difficult to spot when they occur within the same account and in the same reporting period, since the net effect is zero. A statistical analysis of an account may not find a compensating error.
These errors may also appear in different accounts, so that the trial balance totals for total debits and credits are correct, but different account balances are incorrect. For example, the wages expense could be too high by $2,000 due to one error, while the cost of goods sold could be too low by $2,000 due to a compensating error. Or, the revenue account balance could be too low by $5,000, but it is offset by a compensating error in the same amount in the utilities expense account.