Environmental Accounting Basics

Definition and Scope of Environmental Accounting

• Environmental Accounting is also known as Green Accounting.
• Environmental Accounting is a sub-branch of accounting that records, analyzes, and discloses the economic impact of environmental activities.
• It incorporates environmental sources and assets into corporate accounts.
• It measures environmental, social, and economic impact of business.

Features of Environmental Accounting

• It is an inclusive field of accounting that serves both internal and external users.
• It helps in the decision-making process.

Forms of Environmental Accounting

• Environmental Management Accounting (EMA) incorporates environmental and economic information by identifying resource usage and cost of an organization's economic impact on the environment.
• Segment environmental accounting, eco-balance environmental accounting, and corporate environmental accounting are forms of EMA.
• Environmental Financial Accounting (EFA) accounts for environmental transactions that affect a company's financial performance.
• Environmental National Accounting (ENA) involves national-level accounting with a focus on natural resources and green costs.

Need and Significance of Environmental Accounting

• Environmental accounting is necessary for meeting regulatory requirements and disclosing environmental performance to investors.
• It helps in pollution cleanup, proper disposal of hazardous materials, and preventing environmental damages.
• It promotes environmental awareness and controls cost increases for raw materials, waste management, and potential liability.

Benefits of Environmental Accounting

• It helps achieve sustainability by promoting economic, environmental, and social sustainability.
• It reduces costs associated with raw materials, utilities, and waste.
• It creates a positive work environment and helps address climate change.
• It measures environmental problems and an organization's environmental performance.
• It indicates the effectiveness of environmental management and suggests ways for improvement.

Limitations of Environmental Accounting

• There is no standard accounting method.
• Comparison between firms or countries is not possible due to differences in accounting methods.
• Input for Environmental Accounting is not easily available due to difficulty in measuring environmental costs and benefits.
• Many organizations do not track energy and material use or the cost of inefficient material use, leading to underestimation of environmental performance costs.