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What do you understand by the term reclassification in accounting?

August 18, 2023
Bill Kimball

The reason for reclassification has to be disclosed either on the financial statements or by means of an explanatory note (footnotes). It is most often seen as a transfer journal entry & is a critical part of the final accounts of a business. In accounting, the term reclassification is often used to describe moving an amount from one general ledger account to another. Credit – Credited rent account to decrease rent expenses by 5,000 in its ledger balance.

reclassify in accounting

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.” A reclass is a journal entry that moves an amount from one account to another account, typically with no income statement impact.

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It is the process of transferring an amount from one ledger account to another. The above entry was posted to Rent A/C in error as the original payment related to Telephone expenses. Though there are quite a few reasons to perform a reclass entry however we will illustrate one of the most common scenarios i.e. correction of a mistake. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Consider removing one of your current favorites in order to to add a new one. You can set the default content filter to expand search across territories.

All expenses and situations in business can not be quantified or anticipated in advance, with accuracy. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com.


A reclass or reclassification, in accounting, is a journal entry transferring an amount from one general ledger account to another. After finding the error a transfer entry was used to reclass the ledger amount of 5,000 in rent account to telephone expenses account. Accounting for business also means being responsible for adjustments and corrections. One such adjustment entry is ‘reclass’ or reclassification journal entry.

reclassify in accounting

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. It is for your own use only – do not redistribute. These materials were downloaded from PwC’s Viewpoint (viewpoint.pwc.com) under license. Understand what recording transactions is, examine the process of recording transactions, and identify its importance. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network.

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reclassify in accounting

The process of transferring an amount from one ledger account to another is termed as reclass entry. 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.” Ledger accounts are the source of bookkeeping to record the balances of company accounts for a further financial statement such as income statement and balance sheet. They are prepared with the help of journal entries that record financial transactions initially. Assume that a repair bill of $5,000 was initially debited to the asset account Equipment.