What among the following is an example of compensating errors?

Solution

·       Errors of Commission - When an error is committed in recording a transaction with wrong amount or posting to wrong side of the account, it is called an 'Error of Commission'. Following are some of the examples: ·       Posting of correct amount but on the wrong side ·       Posting of a wrong amount but on the correct side ·       Errors of Omission - When a transaction is completely or partially omitted to be recorded in books of account, it is called an 'Error of omission'. ·       Goods are purchased on credit from Mr. A. This transaction is not recorded in the purchase journal. This is called error of 'Complete omission' – MATCHES Trial Balance ·       If the above entry is recorded in purchase journal but remains to be posted to the supplier, Mr. A's account, then it will be called 'Partial omission' – DOESN’T MATCH the Trial Balance ·       Compensating Errors - When one mistake nullifies the wrong effect of another, it is called a compensating error. These are two or more in number and balance each other. ·       Example - total of rent account is undercast by Rs. 1,000 and the total of printing and stationery account is overcast by Rs. 1,000 Errors of Principle - These are errors arising from not observing the accounting principles correctly, e.g. wages paid for installation of machinery debited to wages account.