Syllabus Edition
First teaching 2025
First exams 2027
Compensating Errors (Cambridge (CIE) IGCSE Accounting): Revision Note
Exam code: 0452 & 0985
Compensating errors
What are compensating errors?
Compensating errors occur when the effects of unrelated errors balance out when totalling the debits and credits
Example
A business sells $100 worth of goods to Steve and $200 worth of goods to Tony
The transactions were entered correctly into the sales account
Both Steve and Tony’s accounts were debited $150
Overall the assets have still increased by $300
How do I correct compensating errors?
Correct each error separately
The total of the debits should equal the total of the credits
Worked Example
Ashika sold $100 worth of goods to Steve and $200 worth of goods to Tony. On 1 March 2024, Ashika identified that both of these transactions were entered into the sales ledger accounts as $150. The transactions were entered correctly into the sales account.
Prepare journal entries to correct the error. A narrative is required.
Answer:
The accounts currently look like:
Debit Steve $150
Debit Tony $150
Credit sales $300
The accounts should look like:
Debit Steve $100
Debit Tony $200
Credit sales $300
Fix the errors
Credit $50 to Steve’s account to reduce the balance
Debit $50 to Tony’s account to increase the balance
Journal
Date | Details | Debit $ | Credit $ |
2024 Mar 1 |
Tony |
50 | |
Steve | 50 | ||
Correction of compensating errors - Tony’s account was understated by $50 and Steve’s account was overstated by $50 |
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