Final answer:
The process we use to allocate the cost of natural resources over their future service life is called depreciation. It helps companies accurately reflect the consumption of natural resources and the associated costs.
Step-by-step explanation:
The process we use to allocate the cost of natural resources over their future service life is called depreciation. Depreciation is a method of allocating the cost of a long-term asset, such as natural resources, over its useful life. It allows companies to match the cost of using natural resources with the revenue generated from their use.
For example, if a company purchases a mining site with a estimated value of $1 million and expects to extract natural resources from the site over the next 10 years, it may allocate $100,000 of the cost each year as a depreciation expense.
This process helps companies accurately reflect the consumption of natural resources and the associated costs in their financial statements. It also promotes sustainability by encouraging companies to consider the finite nature of these resources.