Definition of Reclassification
In accounting, the term reclassification is often used to describe moving an amount from one general ledger account to another.
Examples of Reclassification
Assume that a repair bill of $5,000 was initially debited to the asset account Equipment. Since the repair was not an improvement nor did it extend the life of the equipment, the controller prepared a journal entry that debits Repairs Expense for $5,000 and credits Equipment for $5,000. The description on the controller’s journal entry was, “To reclassify the XYZ Co.’s repair bill from Equipment to Repairs Expense.”
Reclassification can also be used to describe moving a note payable from a long-term liability account to a short-term or current liability account when the note’s maturity date is less than one year away.
Another example of reclassification arises when a company stops using one of its buildings and puts the building up for sale. In that situation, the journal entry description might be, “To reclassify the X building from property, plant and equipment to long-term investments.”
