What is a reclassification of net assets in a non-profit context?

In a non-profit context, a reclassification of net assets primarily involves changes in the composition of net assets within different classes. These classes are generally unrestricted, temporarily restricted, and permanently restricted net assets.

When a reclassification occurs, it signifies that there has been an increase in one specific category of net assets accompanied by a corresponding decrease in another category, thereby keeping the total net assets the same. For example, if a temporarily restricted net asset is fulfilled and moved to unrestricted status, you are effectively reclassifying the net assets—reflecting a shift in the nature of the restrictions rather than a change in total assets overall.

Thus, the correct answer highlights this simultaneous increase and decrease in one class of net assets, capturing the essence of what reclassification means in non-profits. This understanding is critical for proper accounting practices in non-profit organizations, particularly in how financial statements are prepared and how net assets are reported.