Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles Current assets The main current assets are cash balances, debtors (accounts receivable), stocks and work in progress. 1. Stocks All purchased materials (raw, auxiliary and operating materials), which have not yet been processed in production, and all work in process and finished goods, which have not yet been sold, are registered annually or regularly in the inventory in a stocktaking procedure. The latter thus provides a good overview (usually as of 31 December) of stocks purchased and consumed in a given year. The consumption of raw, auxiliary and operating materials is posted in the cost of sales account in the profit and loss accounts every year. Depending on the bookkeeping, inventory management and production planning systems employed, different records concerning the values and quantities of raw, auxiliary and operating materials used by a company are available. Further information on the organization of inventory management and production planning and on the inference of the material flow balance are provided in chapters 5.3 and 5.4. 2. Receivables These include: • Receivables from supplies and services rendered to customers; • Receivables from advance payments, loans, bills of exchange, etc. There are no environmentally relevant items in this category. 3. Cash and bank balances This item is self-explanatory and not environmentally relevant. Equity capital Equity capital comprises those assets which the partners have put at the firm’s disposal (share or nominal capital), reserves (profits not paid out but retained by the company for specific purposes) and the profit or loss. Borrowed capital Borrowed capital shows the obligation of the firm to render services in cash or in kind (i.e., services or products). -36-
Environmental Management Accounting Procedures and Principles 1. Provisions Provisions must be made by law for uncertain accounts payable (e.g., pensions, taxes) and potential losses from pending business transactions when a company prepares its financial statements. Provisions are also made for accounts payable the exact amount of which has not yet been determined (e.g., tax consultancy fees for preparation of financial statements). Other accepted provisions include provisions for poor maintenance (waste disposal), clean-up of contaminated sites and reforestation (recultivation) which are also admissible under the tax law. Provisions may always be made if damage to the environment has already occurred, e.g., in the case of clean-up of a contaminated site. Provisions for damage which is imminent but has not yet occurred are usually difficult to assess in compliance with the tax law and must therefore be considered as an imputed risk in cost accounting. The financial statements list the estimated amounts of all accounts payable while the profit and loss accounts show the annual allocation or liquidation of provisions which have altered the earnings of the business year. More explanations on environmentally relevant provisions are provided in chapter 4 under item 1.7 of the environmental cost scheme. 2. Accounts payable Accounts payable for supplies and services are incurred by every company from the receipt of a supplier’s invoice until the day of payment. Sometimes, each supplier has his separate account and the annual sales and invoices are stated there collectively, if they are not easily found in the profit and loss accounts. For instance, the total quantity of a given chemical substance which has been purchased from a supplier may be extracted from that supplier’s collected invoices registered on his account. The invoices of the disposal firm may be dispersed across various accounts, but posted collectively into the supplier’s account. 3. Deferred items This item ensures compliance of the financial statement with the matching principle on the cutoff date of 31 December and is not environmentally relevant. 5.2. Deriving expenditure from the profit and loss statement The profit and loss statement may be arranged according to the expenditure or costcategories-oriented format or to the operational (cost-of-sales) format. In the cost-categoriesoriented format, all earnings and expenses of a period are listed. Operational expenditure is broken down into material and personnel expenditure, depreciation and other expenses. The accumulation and clearance of work in process and finished goods is determined by a stocktaking at year-end, assessed at production cost and posted as correction of sales revenue. In the cost-of-sales format, the actual sales of a period are compared only to those expenses which have been incurred for the manufacture of the products sold. The cost-of-sales format, therefore, requires a constant collection and assessment of inventory increases of finished -37-
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