Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles funds were used in the company (investments) while the credit side shows the origin of these funds (financing). Equity capital (funds provided by the owner) is the balance between assets (investments, receivables, etc.) and borrowed capital. The balance sheet equation thus reads as follows: Assets – borrowed capital = equity, or Assets = borrowed capital + equity This balance sheet equation is the basis from which the entire system of double-entry bookkeeping is derived. Balance sheet on 31 December Class of Class of Asset accounts (credit) accounts accounts Liability accounts (debit) 0 Fixed assets 9 Equity capital Reserves Profits 1 2 2 Figure 15. Current assets Stocks Receivables Cash and bank balances Structure of the balance sheet 3 Borrowed capital Provisions Accounts payable Deferred items The credit side of the balance sheet shows the assets valued in monetary terms on the cut-off date. The debit side shows the funds used by the company, the financial resources, which are divided into equity or borrowed capital (debt). The values for the balance sheet are obtained from the stocktaking process which takes place on the cut-off date and which comprises all assets and debts of a company based on quantity and stated in monetary terms. The further away an item is from its direct realization in cash, the more room for maneuver there is for valuation (fixed assets as compared to cash balance). Fixed Assets Accountants identify three categories of assets: 1. fixed (or long term) assets; 2. current assets; and 3. good will. -34-
Environmental Management Accounting Procedures and Principles Fixed assets are intended to serve the company for longer than the accounting year. Data on them is piled together in the register of plants and equipment. Fixed assets are stated in the balance sheet with their historic purchase costs, reduced by annual depreciation over their expected lifetime. Cost accounting in contrast values fixed assets and the resulting depreciation by their estimated replacement costs. Included under fixed assets are all those assets whose purpose on the cut-off date is to support the company operations permanently and whose useful life extends over several years. The purchase costs are distributed over the useful life via an annual depreciation. The so-called fixed-asset movement schedule shows all fixed assets complete with inventory number, purchase price and date, annual depreciation and value on cut-off date. Fixed assets comprise, inter alia, • Non-built-up and built-up property; • Machines and installations; • Tools, industrial and business equipment; • Intangible assets such as patents, licenses and other rights; • Financial assets such as investments, securities. To determine the environmentally relevant fixed assets, it is imperative that all assets are assessed separately through cooperation between the environmental manager and other members of the environment protection team because bookkeeping does not distinguish between fixed assets used for emission treatment, cleaner technologies or other business property. After the relevant processes, machinery and equipment and their original purchase costs have been determined, the annual depreciation for rollover to the environmental cost assessment according to the actual purchase values of the profit and loss accounts, or according to the cost accounting approach to replacement costs, possibly supplemented with a financing cost surplus, may be carried out. The problem of separating the environmentally relevant portion of the company’s property was already discussed in chapter 4 in connection with items 1.1 and 2.3 of the environmental cost scheme. To determine the existence of environmentally relevant fixed assets, the checklists included in the annex may also be useful. Good will as a particular type of long-term asset is recognized and included in the balance sheet only when money has been given to acquire it, which means the difference between the values in the accounts and the purchase price of a company. Only then has good will materialized and can be monetarized, whereas otherwise it is considered too vague for accounting standards. For capital budgeting, effects of environmental (mis)management on corporate image will be considered. -35-
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