What do we recall? when we first heard or read the term “Human Resources Accounting.”
Something like: two different aspects of business are put together; Right?
Let’s Understand these two different aspects of business world before moving into crux of the subject.
What is Accounting?
it is a bookkeeping of all financial transactions and preparing a financial statement like balance sheet, income statement, cash flow and various reports.
Purpose of accounting is to provide a detailed information about organization’s financial health to the management, so that management can keeps organization financially healthy.
You can say that the accounting is a language of business.
What is Human Resource?
It is a function; which stands for recruiting, staffing, training, compensation and benefits of all labors and employees with a focus of organization development with a good relation.
Now here’s the main crux,
What is Human Resources Accounting (HRA)?
Just interchange the words "human resources" and “accounting” and put an extra word “in” between them, it will become more easier to understand.
Something like: two different aspects of business are put together; Right?
Let’s Understand these two different aspects of business world before moving into crux of the subject.
What is Accounting?
it is a bookkeeping of all financial transactions and preparing a financial statement like balance sheet, income statement, cash flow and various reports.
Purpose of accounting is to provide a detailed information about organization’s financial health to the management, so that management can keeps organization financially healthy.
You can say that the accounting is a language of business.
What is Human Resource?
It is a function; which stands for recruiting, staffing, training, compensation and benefits of all labors and employees with a focus of organization development with a good relation.
Now here’s the main crux,
What is Human Resources Accounting (HRA)?
Just interchange the words "human resources" and “accounting” and put an extra word “in” between them, it will become more easier to understand.
“ACCOUNTING IN HUMAN RESOURCES”
According to The American Association of Accountings HRA is “a process of identifying and measuring data about human resources and communicating this information to interested parties”
This approach is first developed by Rensis Likert and then taken into practice by Eric.G.Flamholtz.
Eric Flamholtz who has done considerable work in this area describes HRA more clearly that “Human resource accounting is accounting for people as an organizational resource. It involves measuring the costs incurred by business firms and other organizations to recruit, select, hire, train and develop human assets. It also involves measuring the economic value of people to the organization.”
Its be like opportunity cost from economics enters in a human resources department indirectly by the means of accounting.
There is a no doubt that labor/employee is an asset of the firm, but if they failed to meet their job role; which produces a less efficient result or poor result.so at the same time labor/employee will become a Liability of that firm. which further become a loss of the firm.
So, to prevent this issue human resources evolving gradually with a time and they come up with a new phenomenon called “human resources accounting”. Which includes both strategic and comprehensive approaches to manage people. apart from that they also focus on organizational behavior concepts like workplace culture and environment.
How Human Resources Accounting (HRA) is Relevant in infra projects?
Today’s infra world is blooming at a very high rate especially when we talk about India.
To maintain an equilibrium with this tremendous growing sector all the firms should need an intelligent and a flexible human capital.
so, by the means of HRA infra organization tries to gain an advantage like:
1. Define and align organization’s vision and mission
Human capital of the company must be aware about that why the company is exists and what is the main purpose of the company; which gives a base to the company to achieve high performance and sustainable growth towards its vision and mission with alignment.
2. Recruit the best talent
Company put its effort to creating, marketing and selling employee value proposition to recruit new talents to make sure that right person at right place, company look its human capital as an asset which includes a valuation of human capital based on their past-experience, effectiveness, intelligence, education and sustainability.
3. Budgeting
HRA goes beyond the simple tracking the employee related cost, company’s annual budget includes a cost related to anticipated values of existing human capital, training of existing as well as new entrants, investment need for new entrants with the future and present value and payroll taxes.
4. Turnover rate
To uncover the main reason behind the employee turnover by the means of which company can calculate and mitigate that turnover related cost.
5. Going concern human capital
HRA gives situation of human capital in the organization with the help of past and present records; which helps the organization to take a decision that particular human asset(labor/employee) is a going concern or not.
Apart from these, HRA also gives a
Cost per employee, human capital ratio, salary paid to total revenue ratio, average salary of employee and absenteeism rate of employee.
By the help of all these parameters of HRA infra word can be able to gather data, analyze and develop a strategy for controlling cost and can be able to facilitate a proper planning for human asset.
Which will result into a
- Better performance with the highest efficiency rate,
- Better working environment,
- Motivation
- Designing a new policy
- Developing a new training method
- Proper and perfect placements
- Increase in morale value
- Attracts best human capital
References
- http://www.yourarticlelibrary.com/human-resources/human-resource-accounting-meaning-definition-objectives-and-limitations/32403
- https://www.accountingcoach.com/blog/what-is-accounting
- https://www.charteredclub.com/what-is-human-resource-accounting
I hope that you enjoyed this post, stay tuned more posts will be coming
Author Details
Vatsal Bhatt | PGDM (IM) | 2019-21
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Vatsal has completed B.E. (Mech). He is currently pursuing PGDM in Infrastructure Management (2019-21) at AIIM. He holds an experience of 12 month in Techno-commercial field. He is an Arts and Literature Lover.
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