On December 31, 2021, Interest expense, incurred but unpaid, was not recorded. What is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2021 balance sheet? No effect on Accrued Liabilities, but Retained Earnings is Overstated. No effect on Retained Earnings, but Accrued Liabilities are Understated. Accrued Liabilities are Understated, but Retained Earnings is Overstated. There is no effect on either Accrued Liabilities or Retained Earnings 3

On December 31, 2021, Interest expense, incurred but unpaid, was not recorded. What is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2021 balance sheet? No effect on Accrued Liabilities, but Retained Earnings is Overstated. No effect on Retained Earnings, but Accrued Liabilities are Understated. Accrued Liabilities are Understated, but Retained Earnings is Overstated. There is no effect on either Accrued Liabilities or Retained Earnings