Final answer:
Reclassifying period costs can artificially increase this period's reported earnings by deferring expense recognition to future periods, though it does not align with GAAP and may lead to financial misrepresentation.
Step-by-step explanation:
Reclassifying period costs as something other than an expense for the current period would result in an increase in this period's reported earnings because it would reduce the amount of expenses recognized. Period costs are usually expensed in the period in which they are incurred and are not tied to the production of inventory. While reclassifying these costs may not reflect the true nature of the expenses and could be misleading, doing so defers the recognition of the expense to a future period.
For example, if a company decides to reclassify a portion of its advertising expense (a typical period cost) as a prepayment or an asset, this action would move the cost out of the current period’s expense line and would not reduce current earnings. This approach, however, is not in accordance with Generally Accepted Accounting Principles (GAAP) and could lead to accounting irregularities. The main reason a company might do this is to make the current period's financial performance appear better, but it does not change the underlying economic realities.