Reclassification in accounting involves changing the categorization of financial data within a company's financial records or statements. This process is typically performed to ensure accurate representation of an entity's financial activities and to comply with accounting standards. For instance, a reclassification might occur when an expense initially categorized under "Miscellaneous Expenses" is later identified as "Office Supplies"; it is moved to accurately reflect its use.

Examples of reclassification include transferring an asset from the "Short-term Investments" account to "Long-term Investments" based on updated projected holding periods, or moving a liability from "Accruals" to "Accounts Payable" if the nature of the liability becomes clear. Another common situation for reclassification is during balance sheet reconciliations at the month end, where transactions may be erroneously or temporarily classified incorrectly, requiring adjustment for accurate monthly reporting.

Reclassification is a routine but critical process in financial management, as it aids in maintaining the accuracy and clarity of financial statements such as the Income Statement, Balance Sheet, and Cash Flow Statement. Using robust accounting systems and ensuring proper communication within the finance team can help streamline the reclassification process, minimizing inaccuracies.