Final answer:
Recording bad debt expense impacts both the income statement by increasing expenses and reducing net income, and the balance sheet by reducing accounts receivable and retained earnings post-closing entries.
Step-by-step explanation:
Recording bad debt expense has an impact on several financial statements, with its primary effects being observed on the income statement and the balance sheet. Closing entries further affect the retained earnings found on the balance sheet.
On the income statement, when a bad debt expense is recorded, it increases the total expenses, thereby reducing net income. This entry typically involves debiting the bad debt expense account and crediting the allowance for doubtful accounts, which is a contra-asset account related to accounts receivable on the balance sheet.
The balance sheet is affected because the net realizable value of accounts receivable is reduced by the increase in the allowance for doubtful accounts. Subsequently, the equity section is also impacted due to the decrease in net income, which reduces retained earnings after the closing entries are completed.