On December 31, 20x5, 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, 20x5 balance sheet?

The effect of the omission is lower accrued liabilities and higher retained earnings.

Explanation:

The impact of omission of special insurance costs on accrued liabilities and retained earnings is that  accrued liabilities would be lower with the costs of special insurance costs,while the retained earnings would be higher  with the same amount.

Ordinarily, the special insurance costs should have been accrued for by debiting insurance expense account as increase in expenses which depicts that the retained earnings is reduced by the same amount and that liabilities is increased by the amount of special insurance costs.

Since the reverse of the above situation was the case,hence it means liability is lower and retained earnings are much more by the same amount.

answer; post closing trial balance;