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What is a valuation account?

In accounting, a valuation account is usually a balance sheet account that is used in combination with another balance sheet account in order to report the carrying amount of an asset or liability.

An example of a valuation account that is associated with an asset is the Allowance for Doubtful Accounts. This account's credit balance will be combined with the debit balance in Accounts Receivable in order to report the carrying amount of the company's accounts receivable. Other valuation accounts include Discount on Notes Receivable, Accumulated Depreciation, and allowance accounts used with inventory and investments.

Two examples of a valuation account associated with a liability are Bond Issue Costs and Discount on Bonds Payable. The debit balances in these valuation accounts will be combined with the credit balance in Bonds Payable in order to report the carrying amount of the bonds. Premium on Bonds Payable is a valuation account with a credit balance.