The following two errors are found. Sales were overcast by £100 in the sales account, and purchases were overcast by £100 in the purchases account. Which statement is correct?
Answer and explanation
Correct answer: D. They are compensating errors
- Step 1: An overcast sales account overstates credits by £100.
- Step 2: An overcast purchases account overstates debits by £100.
- Step 3: Equal and opposite errors cancel, so the trial balance agrees even though the accounts are wrong (a compensating error).
Answer
They are compensating errors.
Why not the others: Nothing has been omitted; both entries were made with the wrong total, and the difference is zero, not £200. Commission means posting to the wrong account, but the right accounts were used, and no £100 difference appears. These are not principle errors, and the trial balance does agree.
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