Failure to record depreciation on machinery will effect income statement, balance sheet , or both?

First you have to know the journal entry to record depreciation, which is:
Debit Depreciation Expense
Credit Accumulated Depreciation

Next you have know what these two accounts are. One is an expense account and one is a contra asset account.

So failure to record depreciation affects both the income statement and balance sheet. The income statement will be overstated. The assets and retatined earnings on the balance sheet will be overstated as well.