Final answer:
A journal entry for environmental rehabilitation costs involves debiting an environmental expense account and crediting cash or accounts payable. This ensures accurate reflection of the company's liabilities and social responsibilities in financial statements.
Step-by-step explanation:
When a company incurs costs to rehabilitate the environment as part of its operational impact, it must record the expense in its financial statements. The journal entry to reflect environmental rehabilitation costs would typically be a debit to an expense account related to environmental costs and a credit to cash or accounts payable, depending on whether the payment was made immediately or will be paid later.Let's assume that a company has determined it has a responsibility to rehabilitate a piece of land it has damaged through its operations. The estimated cost of this rehabilitation is $50,000. The journal entry to record this would be Debit Environmental Rehabilitation Expense $50,000 Credit Cash/Accounts Payable $50,000 This entry recognizes the company's obligation to bear the costs associated with environmental restoration. The narration for the entry could be, "Recorded environmental rehabilitation expense for the estimated cost of land restoration as per environmental compliance requirements." By making this entry, the company acknowledges it has incurred an expense related to its corporate social responsibility.Conclusion The proper accounting of environmental rehabilitation costs ensures that a company's financial statements reflect its current liabilities and expenses accurately. It contributes to a more comprehensive understanding of the company's financial and environmental impact.