1.
Human Resource Accounts
PRESENTED BY:
VIKASH BARNWAL
ASST. PROFESSOR
FACULTY OF BUSINESS MANAGEMENT
KASHI INSTITUTE OF TECHNOLOGY

2.
Concept of Human Resource Accounting
 Human Resource Accounting definition refers to a system of accounting that
tracks the financial, human, and non-financial aspects of an organisation’s
employees. It is used to measure the effectiveness of an organisation’s human
resources strategy and to evaluate the performance of employees. A Human
Resource Accounting system should include metrics that measure employee
engagement, training effectiveness, and productivity. It should also track
employee turnover and absenteeism. The primary purpose of a Human Resource
Accounting system is to provide an accurate and reliable record of employee
performance. It should also be used to measure the effectiveness of employee
training programs and evaluate employees' performance.

3.
 Human resources accounting is the process of identifying and measuring your
organisation’s Human Resources (HR) budget. The term can be slightly misleading,
as it implies that HR spending is something to be tracked and analysed like
financial or operational expenses. Human Resource Accounting is a broad term
that refers to collecting, analysing, and reporting data about employee benefits,
compensation practices, and benefits in general.

4.
Main Features of Human Resource Accounting:
 Human Resource Management: It involves everything from hiring and firing to training and
development.
 Employee Benefits: This includes things like health insurance and retirement benefits.
 Payroll: Includes things like payroll taxes, employee overtime costs, and other expenses related to
compensation and payroll processes
 Compensation: Things like salary, bonuses, stock options, and other forms of payment that
employees receive are included.
 Human Capital: Includes things like work hours, absenteeism, turnover rates, etc.
 Records Management: This involves everything from keeping track records to tracking equipment
usage.
 Benefits Administration: This involves keeping track of benefits provided by employers, such as
vacation days or paid time off.
 Recruitment & Selection - This involves recruiting new employees as well as screening job
applicants to fit into the organisation’s culture.

5.
The HR accounting process involves the following:
 Identifying and understanding the needs of the organisation and its employees
 Identifying and developing the appropriate human resources
 Implementing effective recruitment, selection, training, development, and
compensation programs
 Maintaining an accurate and up-to-date HR system
 Ensuring that all employees are treated equally and fairly
 Maintaining an accurate and up-to-date payroll system

6.
Objectives of Human Resource Accounting
 The objectives of Human Resource Accounting are to provide accurate and
reliable information that is used to make informed decisions about personnel,
compensation, training, and other HR matters. The following are some key factors
that should be considered when conducting HR:

7.
Human Resource Accounting goals include the following:
 It aids the organisation in planning allocated personnel expenditures well in advance, including
procurement prices, training expenses, the price for expansion of human possessions, salaries, and so on.
 Human resource bookkeeping is just one of the best means to measure the expenditures done by an
organisation on the personnel as well as the exact worth of these resources. All the decisions concerning
the workforce, working in a particular organisation are based on the HRA.
 Once the monitoring has entire mathematical details regarding the human possessions of the
organisation, they start considering it as a vital part of all their choices. This addition improves the
managerial ideology as the organisation becomes clear about the affordable results of the personnel.
 The HRA system helps the administration of any type of organisation to evaluate the employees on the
basis of their performance and their criteria and supply them with incentives appropriately.

8.
 In order to estimate the worth of personnel, an organisation has to adhere to certain
concepts and treatment according to the standards established by the Human
Resource Department.
 In case there are any upcoming changes in the worth of the human properties
operating in the organisation, a personnel audit offers an indicator to the authority
ahead of time so that appropriate steps can be required to preserve the most
beneficial human properties of the organisation.
 It aids the administration in scrutinising whether the readily available human resources
are utilised in the most effective feasible means or not, i.e. there must be the optimal
application of the labour force. There ought to be no exploitation of workers in the
organisation.

9.
Methods of Human Resource Accounting
 Historic Expense: Historical costs are based on actual human resources expenses. There are two types of such expenses: purchase expenses and learning
expenses. Training and development expenses are included in the acquisition price. Although this approach is easy to apply, it does not show the true value of
human assets.
 Replacement Price: Unlike historical price, which considers the actual price sustained by workers, substitute expense considers the nationwide cost of replacing
today's employees.
In order to calculate the replacement price, various kinds of expenditures are considered, both in terms of procurement and price determination. The
substitute expense is usually much higher than the historic expense.
 Requirement Expense: Rather than using historic or replacement prices for valuing human assets, some businesses use basic prices just as they do for physical
and monetary assets. Based on their hierarchical placements, employees of a company are categorised into different groups for utilising common costs. Every
classification of a staff member is dealt with in terms of standard expenses, and their value is determined.
 Present value of future earnings: In this method, the value of future earnings for a number of individuals is approximated as much as their retired life. It is
marked down at a predetermined price to acquire the here-and-now value of such revenues. Today's worth of future revenues is used when it comes to
financial assets, but this approach does not result in an appropriate measurement of human resources.
 Procurement Cost Approach: A key aspect of this method is the capitalisation of historical costs. The company incurs these costs to improve its business
performance. The expenses incurred in employment are capitalised and written off over a period of time. The unamortised portion of the cost has to be written
off against the revenue and loss account of the particular year.
 Replacement Cost Approach: Under this technique, one considers how much it costs to replace existing sources as well as, thus, how much it costs to replace a
company's current resources. The method also stands for a current market problem. This approach is often

10.
 repetitive unless the company wishes to replace its current resources. This, too, is a tough approach as frequently the
substitute is not identical.
 Present Value of Future Profits Method: The capitalisation of wage technique is another method to capitalise wage
It involves estimating future earnings up to the employee's or worker's retirement age and marking the worth accordingly
to acquire the present value.
 Anticipated feasible worth: The above techniques reviewed thus far are based on price consideration. For that reason,
these methods might give information for theoretical objectives but do not mirror the real worth of human assets
compared to these techniques.
 Economic Value Method: The economist refers to an asset's current market value as the asset's 'value.' This approach has
number of strengths, but it requires a certain amount of work. First, the future benefits and an appropriate interest
(discount) rate are estimated. Then, the present value of future benefits is calculated.
 Competitive Bidding Method: This is also known as the opportunity cost method. Opportunity cost is the tangible
of choosing an alternative path. Once HRA has been audited, each bidder's total amount of capital expended is recorded.
The return on investment is determined by comparing the dollar amount bid with the amount spent.

11.
Benefits of Human Resource Accounting
 Assists in Determining ROI - HRA is an accounting system that recognises the expense made on an
organisation's personnel. Once the investment is computed, an organisation can quickly calculate the
exact ROI by determining the earnings made by the organisation. This will assist in monitoring how much
they should spend on the personnel to attain optimum ROI.
 Inspires Employees - Staff members get motivated to enhance themselves once they familiarise their real
value in the eyes of the personnel accounting system of the organisation. The amount invested in them
will motivate them to boost the output symmetrical to the organisation's financial investment.
 Boosts Process of Choice Making - HRA works as a centre to get information about the actual value of
personnel operating in the organisation. This information assists the administration in making
appropriate choices regarding organisational concerns.
 Sign of Health of the organisation - HRA functions as an indication of the well-being of any kind of
organisation. The quantity of investment made on the personnel of any organisation aids in gauging the
amount of revenue that might be gained in the future.

12.
 Assist in Figuring Out the Requirement of Recruitment - HRA reports on the changes in obtaining
returns as well as how much expense needs to be made on the manpower of the organisation. If
the earnings are high demand for hiring brand-new staff members, and if no earnings are gained,
no more employment occurs. These decisions are based on the information given by HRA.
 Ascertains Unfavorable Results of the Programs - HRA system additionally assists in establishing
the negative impacts of numerous programs running in the organisation.
 Facilitates Organising and Executing HR Plans - HR policies of an organisation include plans
regarding human resources functions such as promotion, training, demotion, transfer etc.
Appropriate organisation and implementation of these plans are vital for every organisation's
smooth functioning. This feature is controlled by the Human Resource Accounting system of an
organisation.