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Human Resources Accounting

Our assets walk out the door each evening. We have to make sure they come back the next morning. N.R.Narayana Murthy

In the past. . .
HR professionals have been getting by focusing on the day-to-day. They need to develop a broader and fartherreaching vision and understand where their organization is headed and how they can help steer the company in that direction.

To be a globally respected corporation that provides best breed of software solution delivered by best-in-class people.

The Failure of Conventional Accounting


Amount spent on human resources is completely treated as an expense which is incorrect. Management has no information regarding total investment in human resources. Failure of conventional accounting in recognizing capabilities & talents has resulted in high labour turnover.

Human Resource Accounting


HRA procedures are the first step in developing sophisticated measurement and accounting procedures to enable to company to report accurate estimates of the worth of the organizations human assets. Takes the view that HR are similar to financial & physical resources. An Asset is the right to receive future economic benefits. HR therefore represent Attritional Assets. It is theoretically possible to measure HR costs and benefits.

Objectives of Human Resource Accounting

Provide qualitative information on HR which will help managers and investors in making decisions. Evaluate RoI on HR.

Communicate worth of HR to organization/society

Historical-cost approach

Also called Acquisition Cost approach. Cost of acquiring an employee ( recruitment, hiring, induction ) are taken into account. These historic costs are capitalized. Capitalized costs are written off over a period of time the employee remains in the organization. On premature separation the unamortized cost is written of against Profit/Loss of that year. Note: Not useful for managerial decision making. Benefits to organization is not known.

Replacement Cost

Measures the cost of replacing the employee rather than the historical cost of an employee. Most appropriate in the context of dismissal and replacement staff. Include: recruitment, selection, compensation, and training costs May lead to upwardly biased estimates because an inefficient firm may incur greater costs. How often do companys make decisions regarding dismissing & replacing staff?

Present Value of Future Earnings ( Lev & Schwartz)

Organization establishes what an employees future contribution is worth to it today

Can be measured by its cost or by the wages the organization will pay the employee

Measure is limited because it assigns value to the average rather than to a specific group or individual.

Endless Search

The search continues for a single, limitedcriterion measure for HRA but it is unrealistic to expect that such a measure will be developed. We judge the value of athletes by measuring how much a particular team is willing to pay him.

Measurement of intellectual capital can help managers and investors by providing a more accurate estimate of the true value of the company than would a single accounting of its physical holdings.

Advantages of HRA

Provides quantitative information on value of human capital. Helps management to judge adequacy of human resources. Helps to judge return on investment in HR. Promotes intellectual and social growth of individual and economic goals of the organization. Facilitates planning and control in key areas like labour turnover, productivity & performance evaluation.

BOOKS OF ACCOUNT
Statutory Records

Objective of Books of Account

Accounting records should be prepared in such a manner and design so as to enable the entity to ascertain and know: Liabilities had and amount owned to parties Assets owned and their value Cost of goods sold Sales made, revenue earned and gains made Expenditure incurred and losses suffered

Documentary Evidence for BoA

Vouchers are the basic documentary evidence for BoA. They are of different forms: Cash voucher( receipt and payment) Bank voucher( receipt and payment) Journal vouchers( non cash/bank transactions) Cash memos Invoice Goods received note(GRN) Receipts for Salary/Salary sheet Bills for Telephone, Electricity and Water

Statutory Provisions Companies Act 1956


Sec 209( Books of Account ) Every company shall keep at its registered office BoA with respect to: (a) All sums of money received and expended (b) All sales and purchase of goods (c) Where company is involved in production, processing, manufacturing or mining particulars relating to utilization of material orlabour or other items of cost.

Annual Accounts & Balance Sheet


Sec 210: At every AGM the Board shall lay before the company: (a) A balance sheet & (b) Profit & Loss account for that period. In case of business carried on not for profit an Income & Expenditure account. Minimum accounting period is 9 months and maximum period is 18 months.

Preservation of BoA

The BoA shall be maintained for a period of eight years from the year of which the account relates. Following BoA are generally maintained : Cash book, Bank book Journal, General Ledger Purchase register, Sales register Creditors ledger, Debtors ledger Sales return and Purchase return register Cost accounting records