error that cancels out another error; also called counterbalancing error. For example, if an accountant charged an expense to 20X1 when it should have been charged to 20X2, the effects of the two errors are cancelled out in 20X3. This occurs because in 20X1 the expense is overstated and the profit is understated whereas in 20X2 the expense is understated and profit overstated. Thus the beginning balance of retained earnings on 1/1/20X3 will be properly stated, since the effects of the errors offset each other. Thus over a period of two years, the effects of the errors in expense will counterbalance, and the total net income for the two years together will be the same as if the errors had not occurred. However, it should be noted that the yearly net income figures for 20X1 and 20X2 are still misstated, so the trend in earnings is distorted.