What is Environmental Accounting?

What is environmental accounting? Environmental accounting is a subset of accounting that is used by businesses to make internal business decisions. As a tool used to make proactive environmental management decisions, you can imagine just how important this subset of accounting is in today’s economic climate. Read on, and learn how environmental accounting has been developed to battle the limitations within management accounting that exist when approaching aspects like environmental costs and impacts.

Limitations in Management Accounting and How Environmental Management Accounting Has Become the Solution

Environmental Management Accounting is a fairly new subset the the general practice of accounting. It was ultimately developed to address ongoing issues surrounding how environmental costs were tracked and labeled in the past. When using general accounting principles, accountants had no choice but to label the environmental costs of doing business in an overhead account. The problem with this is that the cost allocations and financial reports were highly inaccurate and could not be traced to the products and processes. Raw materials were not accounted for properly, making it nearly impossible to evaluate production costs or lower these costs efficiently.

The solution was to come up with a subset of accounting that addressed these problems while still using general accounting principles. The answer was Environmental Accounting, which is Management Accounting that puts a focus on energy flow and environmental costs so that an organization can make better and more informed decisions. While Environmental Management Accounting is a form of Management Accounting, it is also comprised of National Accounting and Financial Accounting principles. As an environmental accounting specialist, you must learn how to report on liability costs while focusing on the stocks of materials and how limitations can affect future costs.

Related Resource: Master’s Degree in Accounting

What Are the Advantages of Environmental Accounting?

Environmental Accounting is a business management tool, but is it worth spending the money on human capital to manage environmental costs? The Environmental Protection Agency believes investing in environmental accounting is well worth the money. Environmental costs are incurred by many different businesses, and these costs require special attention that can only be given by using Environmental Accounting Management practices. By using this subset, you can significantly reduce or eliminate costs by investing in greener processes and technologies. You can also see the costs that may be obscured in your overhead accounts so that the costs can better be offset. With improved environmental performance and more accurate cost pricing, you can improve the bottom line and your reputation to boot. This leads to a competitive advantage over other companies without green practices.

If you are interested in entering the discipline of accounting, or you are business owner trying to manage costs, you will need to understand what environmental accounting is and why it is important. While Management Accounting does include accounts for many different costs, there has always been a missing place of environmental costs. Now, you do not have to rely on overhead costs to include your raw materials or energy usage.