What is the normal balance of the Allowance for Doubtful Accounts?

The Allowance for Doubtful Accounts has a normal credit balance because it is a contra asset account. This account is used to estimate the amount of accounts receivable that may not be collectible, effectively offsetting the total accounts receivable balance on the balance sheet. This normal credit balance reflects the nature of the account as it reduces the total assets reported.

When an adjustment is needed to account for potential bad debts, the allowance increases (credited) and this estimate assists in presenting a more accurate picture of the company's financial position. It is not common for this account to reflect a debit balance, nor is it limited to appearing solely on the post-closing trial balance; rather, it appears in both the adjusted trial balance and the financial statements to provide transparency regarding the risks associated with receivables.