Two or more errors when committed in such a way that there is increase or decrease in the debit side due to an error, also there is corresponding decrease or increase in the credit side due to another error by the same amount. Thus, the effect on the account is cancelled out.
Sohan’s A/c is debited by Rs 2500 while it was to be debited by Rs 3500 and Mohan’s A/c is debited by Rs 3500 while the same was to be debited by Rs 2500. Thus excess debit of Mohan’s A/c by Rs.1000 is compensated by short credit of Sohan’s A/c by Rs.1000. As the debit amount and the credit amount are equalised, such errors do not affect the agreement of Trial Balance, but the fact remains that there is still an error.
Purchases a/c was overstated by $1,000.00 and so is Sales a/c
Debit: Sales A/c $1,000
Credit: Purchases a/c $1,000
Being correction of overstatement of $1,000 each in the Sales a/c and Purchases a/c which compensated for each other.