Which of the following accounts related to receivables would normally have a credit balance?

• A. Accounts Receivable
• B. Notes Receivable
• C. Interest Receivable
• D. Allowance for Doubtful Accounts

Answer: (D)

Verified step by step guidance

1. Understand the nature of the accounts listed: Accounts Receivable, Notes Receivable, and Interest Receivable are asset accounts, which typically have debit balances. Allowance for Doubtful Accounts, however, is a contra-asset account, meaning it offsets the value of Accounts Receivable and typically has a credit balance.
2. Recall the purpose of the Allowance for Doubtful Accounts: It is used to estimate and account for the portion of receivables that are expected to be uncollectible, reducing the net realizable value of Accounts Receivable.
3. Review the normal balance of contra-asset accounts: Contra-asset accounts, such as Allowance for Doubtful Accounts, have credit balances because they decrease the value of the associated asset account.
4. Compare the listed accounts: Accounts Receivable, Notes Receivable, and Interest Receivable are not contra-accounts and therefore have debit balances. Allowance for Doubtful Accounts is the only account listed that would normally have a credit balance.
5. Conclude that the correct answer is Allowance for Doubtful Accounts, as it is the contra-asset account designed to offset Accounts Receivable and typically carries a credit balance.