An example of a reclassification entry would be an entry to:
A) increase the allowance for doubtful accounts when it was discovered that a customer had filed for bankruptcy.
B) increase the income tax liability account when it was discovered that the tax rate would be higher than originally estimated.
C) reduce inventory when the client failed to write down its obsolete raw materials.
D) change material credit balances in accounts receivable accounts to accounts payable accounts.

Question

Quizplus · Accepted Answer

Reclassification entries are made to correct the classification of transactions or balances. Option D is correct because it involves reclassifying credit balances in accounts receivable (normally a debit balance account) to accounts payable (a liability account), which is a classic example of reclassification. Options A, B, and C involve adjustments for valuation or estimation changes, not reclassification of existing balances.

An Example of a Reclassification Entry Would Be an Entry