Human Resource Accounting & its Benefits

Human Resource Accounting is similar to what we see in the concept of financial accounting. Financial accounting manages the costs of assets such as building and machinery while Human Resource Accounting (HRA) shows humans as capital, not as expenses. Hence HRA shows the investment the organization makes in its people and how their values change over a period of time.

Definition of Human Resource Accounting

 “Accounting for people as an organizational resource. It involves mea­suring the costs incurred by organizations to recruit, select, hire, train, and develop human assets. It also involves measuring the economic value of people to the organization” 

Objectives of Human Resource Accounting

• It provides cost-value information related to the acquisition, development, and allocation of human resources to achieve organizational goals effectively
• Empower management to monitor the use of human resources effectively.
•  Helps in the development of effective management practices by sequencing the financial consequences of various practices followed by an organization.

Benefits of Human Resource Accounting

1. Provides necessary Information

HRA provides useful information related to human capital in the organization. Such information enables the manager to take the right decision like recruitment and promotion transfers retention etc.

2. It Facilitates Human Resource Planning

It focuses on the strength and weaknesses of the employees working in the organization. It helps in HRP i.e whether to hire /recruit people or not.

3. Evaluate the Effectiveness of Human Resource Management

HRA also facilitates management to evaluate the effectiveness of HR  policies and practices for example the high cost of training may warrant looking at the return over a period of time.HRA also provides feedback to a manager even on their own performance.

4. Information Platform for Investors

It also provides valuable information for present and even potential investors to judge a company better on the value of a human resource.