Glossary
Fund Accounting

Reclassification Entry

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

A reclassification entry moves amounts between accounts or funds to correct categorization and maintain accurate nonprofit financial records.
A reclassification entry is a type of journal entry used in fund accounting to move amounts from one account, fund, or classification to another. This process is essential when an initial transaction was recorded in the wrong account, or when adjustments are needed to reflect the correct allocation of revenue or expenses between funds. Unlike corrections that fix outright errors, reclassification entries often provide more accurate categorization for financial reporting purposes, ensuring all transactions are properly documented and compliant with nonprofit accounting standards. They help maintain transparency and traceability in financial statements by clearly documenting the reasons for adjustments.

Key Takeaways

  • Transfers amounts between accounts or funds
  • Improves financial statement accuracy
  • Essential for compliance in fund accounting
  • Documents adjustments for transparency

Why It Matters

Ensures financial statements accurately reflect fund balances and proper allocations.

Real World Example

A nonprofit initially records a $2,000 grant in its general fund, but later realizes the grant was restricted for a specific program. To correct this, the accountant creates a reclassification entry that moves the $2,000 from the general fund to the restricted fund. This ensures the funds are used according to donor intent and reported properly. The reclassification entry also creates an audit trail, showing why and how the adjustment was made, which is particularly important during annual audits or when reporting to the board.

How Aplos Helps

In Aplos, you can easily create reclassification entries through journal entries, allowing you to adjust funds or accounts as needed. This feature ensures your reports remain accurate, compliant, and clear for audits or board review. Aplos tracks all reclassifications for transparency and audit trails.
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Frequently Asked Questions

What is a reclassification entry?

A reclassification entry is a journal entry used to move amounts between accounts, funds, or classifications to ensure correct financial reporting.

When should a nonprofit make a reclassification entry?

A nonprofit should create a reclassification entry when a transaction was initially posted to the wrong account or fund, or needs to be moved for accurate reporting.

How does Aplos help with reclassification entries?

Aplos provides tools to create, track, and document reclassification entries, making it easy to maintain accurate and transparent records for audits and board reports.

Is a reclassification the same as correcting an error?

Not exactly. While both adjust records, reclassification entries often move amounts for proper categorization, not just to fix mistakes.