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Human resource accounting and its methods

>> June 3, 2009

Human resource accounting is recording and identification of human cost . It includes calculation and recording the cost of recruiting , selection , training and developments of employees .

Explanation of human resource accounting :-

Under HRA , organization deals with employees as assets and shows in balance sheet .

Method of calculating the value of human assets

There are many method for maintaining accounting under this system and also calculate human resource value with following ways .:-

I ) Historical cost method

Under this method , we calculate the value of human assets on the basis of historical transaction with employees on the basis of wages and salaries . His value is directly charges on the total cost of finished product and all managerial staff salaries are shown in profit and loss account only. There is no extra account is made under this method .

2. Present value method of future earning

Under this method , we can calculate the value of employee with following formula

Value of employee =

Employee’s annual earning up to retirement / ( retirement age + discount ) power( t+r )

= $ 1000000 / (60+10) power 60 age+10rate

3. Cost benefit method

Under this method we can calculate total estimated benefit which is given by employee to organization and then we calculate the total value of benefits which is give by co. to employee and its difference is surplus which is real value of human resource asset .

4. Way of showing HR in balance sheet under total cost method

Balance sheet

Liability side

HR capital $ 4000000

Assets side

HR asset $ 4000000

Benefits of HRA

There are many benefits of HRA accounting which can be explain in following way.

  1. HRA provides the information of total cost of human assets which can use for calculating their benefits for business by comparing it with the benefits provided by employees.

  2. HRA is top work in the field of accounting because in accounting , we includes all physical assets and intangible assets but before making of HRA accounting we are ignoring a very important asset and its name is human being who works in any company or industry.

  3. Human resource accounting is very important where human element is more important than any other factor of production or services. For instance education sector is top sector who human resource accounting must be used for maintaining the accounts of education department .

Demerits of Human resource accounting

  1. Calculation the value of human resources is not so easy because it is most difficult to calculate the value of the quality of any person. What worth will be of honesty, morality, benevolence and generosity? But these moral values are so important for developing any company from bottom point.

  2. Jealousy to see the high value of other employee can decrease the efficiency of any employee because he can think why my price is sow low and other employee’s price is so high.

  3. From human resource accounting, we can not get short period benefits like general historical accounting system.

  4. Indian company law 1956 , Indian Income tax law 1961 and other legal laws are no rule for showing human resource assets in the balance sheet .

Do you know about something new about human resource accounting?

  • In 1891 , first William patty calculate the value of human resource in the form of money

  • Lev and Schwartz (1971) is the first person who discover above formula of value of employee.

  • Most popular book of human resource accounting is Human Resource Accounting: Past, Present and Future which is written by Caplan, Edwin H. and Landekich, Stephen

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