The correct answer is: B. Balance sheet.
A compensating error is an error in the accounting records that is offset by an error of equal and opposite amount in another part of the records. This type of error does not affect the overall accuracy of the financial statements, as the two errors cancel each other out.
A trial balance is a list of all the accounts in the accounting records, with their balances. The trial balance is used to check the accuracy of the accounting records, but it does not detect compensating errors.
A profit and loss account is a statement of the income and expenses of a business for a period of time. The profit and loss account is affected by errors in the recording of income and expenses, but it is not affected by compensating errors.
A balance sheet is a statement of the assets, liabilities, and equity of a business at a particular point in time. The balance sheet is affected by errors in the recording of assets, liabilities, and equity, but it is not affected by compensating errors.
In conclusion, a compensating error affects the balance sheet, but it does not affect the trial balance, the profit and loss account, or any other financial statement.