Offsetting error definition
/What is an Offsetting Error in Accounting?
An offsetting error is a mistake that counteracts another mistake. The concept most commonly occurs in accounts payable, when an expense is charged to the wrong accounting period. For example, an invoice for $10,000 is charged to expense in January when it should have been charged in February. This means the income statement shows a before-tax profit in January that is too low by $10,000 and an income statement in February that is too high by $10,000. These two events offset each other, so the year-to-date income statement is correct by the end of February.
It might initially seem as though offsetting errors are not a concern, since they have a negligible impact on the long-term outcomes reported by a business. However, there are several concerns with offsetting errors, which are as follows:
Incorrect account balances. Some individual account balances will be incorrect, even if only for a single reporting period.
Transaction processing issues. If errors are occurring at all, this indicates a problem with an organization’s transaction processing systems, which do not have sufficient controls to keep these errors from occurring.