Human Resource Accounting (HRA)

Today the most precious input is the human element in an organization. Human Resource Accounting (HRA) is the process of discovering and measuring data about human resources and communicating this information to stakeholders. In other words, Human Resource Accounting is the process of identifying, budgeting, and reporting the cost of human resources incurred in a business, like wages, salaries and training expenses. Human Resource Accounting is considered the activity of understanding the cost invested for workers towards their hiring, training, payment of salaries & other benefits paid and in return figuring out their contribution to company’s profitability.

Objectives of Human Resource Accounting (HRA)

  • Identification of human resources value.
  • Calculating the cost and value of the employees to company.
  • To assist in the improvement of management principles and appropriate decision making for the future by classifying financial implications of various practices.
  • Human Resource Accounting (HRA) gives comparative information pertaining to costs and advantages associated with investment in human assets.
  • It supplies information to all individuals concerned about the earning potential of human resources of the company.
  • To monitor efficiently the utilization of human resources by the administration.
  • Human Resource Accounting (HRA) enhances the quality of human resources decisions made concerning an organisation.
  • To evaluate the efficiency of human resources in obtaining productivity and profitability
  • HR Accounting aids management in taking suitable decisions pertaining to investment in human resources.

One of the earliest supporters of the subject, Prof. Likert has described the following points as the objectives of Human Resource Accounting HRA.

  • HR Accounting allows management personnel to monitor effectively the use of human resources.
  • It assists the development of management principles by classifying the financial consequences of various practices.
  • Human Resource Accounting (HRA) provides cost value information for making management decision and maintaining human resources so as to achieve cost effective organisational objectives.
  • It offers a sound and efficient ground for asset control i.e. whether assets are conserved deputed or appropriated.

Assumptions of the Human Resources Accounting (HRA)

  • Employees are valuable resources of an organization.
  • Information about investment and value of human resources is helpful for making decisions within an organization.
  • The utility of manpower as an organisational resource is dependent upon how it is managed.

Benefits of Human Resources Accounting (HRA)

  • It assists the management in employment and utilization of Human Resources.
  • Human Resource Accounting (HRA) facilitates the understanding and evaluating the inner strength of a company and helps the management to steer the company well through the most adverse and unfavourable conditions.
  • It assists the staff in increasing their performance and bargaining power.
  • HR Accounting works well for deciding transfers, training, promotion and retrenchment of human resources
  • It offsets uncertainty and change, because it allows the company to have an appropriate individual for the right job at the right time and place.
  • HR Accounting makes each and every worker recognize his contribution for the improvement of the organization vis-a-vis the costs incurred by the organization on him.
  • It contributes greatly to spot the reasons for high labour turnover at different levels and taking preventive steps to contain it.
  • Human Resource Accounting (HRA) aids in analyzing the expenditure incurred for providing further education and training of workers with regards to the benefits derived by the organization.
  • Human Resource Accounting (HRA) gives valuable information to people serious about making long-term investments in the company.
  • It gives a foundation for the planning of physical assets vis-a-vis human resources
  • It offers scope for development and advancement of workers by effective training and development.

Watch a video on Relation between HR & Accounting

Q. What is Human Resource Accounting (HRA)
Q. Write a short note on HR Accounting (HRA).
Q. What are the objectives, assumptions and benefits of Human Resource Accounting (HRA)

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