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What is a reclassification?

Author:
Harold Averkamp, CPA, MBA

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.”

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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