A couple of days after posting the above solution, the problem returned on my Windows system.
Finally after several hours of investigation I think I have another solution for everyone having issues with AVD Manager “Unable to locate adb”.
I know we have the setting for the SDK in File -> Settings -> Appearance & Behavior -> System Settings -> Android SDK. This it seems is not enough! It appears that Android Studio (at least the new version 4) does not give projects a default SDK, despite the above setting.
So, you also (for each project) need to go to File -> Project Structure -> Project Settings -> Project, and select the Project SDK, which is set to [No SDK] by default.
If there’s nothing in the drop-down box, then select New, select Android SDK, and navigate to your Android SDK location (normally C:\Users[username]\AppData\Local\Android\Sdk on Windows). You will then be able to select the Android API xx Platform. You now should not get this annoying adb error.
HTH