On December $31,2018,$ special insurance costs, incurred but unpaid, were not recorded. If these insurance costs were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings in the December $31,2018$ balance sheet?

$$ Accrued Liabilities$$ Retained Earnings

$$ No effect$$ No effect

$$ Accrued Liabilities$$ Retained Earnings

$$ No effect$$ Overstated

$$ Accrued Liabilities$$ Retained Earnings

$$ Understated$$ No effect

$$ Accrued Liabilities$$ Retained Earnings

$$ Understated$$ Overstated