When setting up Allowance for Doubtful Accounts / Bad Debt Expense which "TYPE" should the allowance for doubtful accounts be set up as? I would think Accounts Receivable but then I am unable to book a CM with the allowance account being the offsetting account due to the Type being classified as Accounts receivable. What is best practice for setting this up and handling each month?

it is up to you. if you pick AR type AND do not make any adjustments to the AR Aging your bad debt will part of the aging. If you use Other Current Asset type your native AR Aging will not be affected