Hi Cleven,
Human resources accounting is the process of measuring and reporting the human dynamics of an organization. Basically, it is an information system that tells the management what changes over time are occurring to the human resources of the business. It is to comprise the following three aspects:
1. Evaluation of human resources
2. Recording the valuation in the books of account
3. Presenting the information in the financial system for communication to interested parties
The need for HR accounting includes:
1. Exposure of a complete picture
2. Effective control
3. Information for others
4. Information on the efficiency of HR
5. Indicator of prospective profit
6. Developing employee behaviors
7. Information for making comparative analysis
8. Information for making decisions
9. Determining profitability and productivity
10. Information to help in the efficient utilization of HR
HR accounting also culminates in the preparation of two statements: the Profit and Loss account and the balance sheet. Both are known as Generally Accepted Accounting Principles (GAAP).
Nowadays, "cost-based HR accounting" is mostly used in every organization. It involves the computation of HR costs by following methods:
1. Historical cost approach
2. Replacement cost approach
3. Opportunity cost approach
Here are some various HR accounting models that are used in organizations:
1. Economic model
- It calculates estimated salaries and wages
2. Lev and Schwartz model
- It calculates estimated HR value
3. Flamholtz normative economic model
- It measures an individual employee's value to an organization
Indian companies have realized the importance of HR accounting. BHEL, SAIL, ACC Ltd., Hindustan Lever Ltd., TELCO Ltd., etc., have adopted various HR models.
Bashir