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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."