What is Human Resource Accounting in Operations

Accounting is a man-made skill for policies and procedures that have been modified for a long time to assist the business in reporting to management. In the four aspects of production, namely, man, money, property, and land.

According to the American Accounting Society Committee, “Human Resource Accounting is the process of identifying and measuring data about human resources and communicating this information to interested parties". It estimates financial value, real costs, and personal value and informs those who need to know exactly what type of return they are getting from their investment.


Employee accounting is an attempt to identify and report investments made on the organization's employee resources that are currently not accounted for under the general process. It is an information system that tells managers, what changes occur over the extra time that people use in a business, as well as the cost and value of an individual feature in an organization.

Benefits of Human Resource Accounting

  • It assists employees in increasing their performance and negotiation power.
  • HR Accounting is effective in determining transfers, training, promotions, and retrenchment.
  • Management decisions can be improved.
  • Helps managers use best practices for pay, salaries, and overtime management.
  • The Human Resource Accounting system discloses the actual amount of staff resources and its benefits in this regard.
  • Effective and efficient use of human resources.

Importance of Human Resource Accounting

The HRA not only recognizes the value of all the resources used by the organization but also includes human resource management that will ultimately increase the value and quality of goods and services.

Every manager will have many long-term and short-term goals for his or her business. How do they get there and achieve the results they set out. It all depends on careful planning, making the right decisions, and understanding the data.

Cost savings compared to pay is a simple way to measure profits, but that does not always give us the real value of how the business is run or the efficiency of its employees. It provides the basis for planning human resources, which helps to identify key employees and their costs and benefits.

Human Resource Accounting Calculation Methods

1 - Cost Method

  • Acquisition Cost Method In the process of acquisition costs, entities make money on all costs related to human resources (such as training, welfare, and other expenses) of the organization and pay into the profit and loss account.
  • Switch Cost Method This method is used to determine whether to continue working or in a job position. It takes into account the cost of replacing staff or work. This approach also helps in determining whether staff appointments are beneficial to the organization or not.

2 - Value Approach Method

  • Current Pricing Method The current value of all future benefits to employees is determined by knowing whether the organization can afford the costs and can benefit from future expenses incurred by employees.
  • Organization Method Value The organization's most important employee is determined and measured to determine whether the organization receives a premium for that employee's services and assists in determining the value of that employee.
  • Cost Model Method This method divides employees into two phases: the decision-making phase and the decision-making phase, and determines the actual costs incurred in both categories and determines whether it is a benefit to the organization or not.


Human Resource is the most valuable asset in any organization. The organization will operate efficiently and will be able to stand in the long run because of its efficient resources. Therefore accounting is important. The accounting of human resources is based on speculation; so proper estimation is not possible. Understanding how our employees, managers, and employees are financially important can help guide managers and business owners to make really important decisions, especially when it comes to staffing, corporate development, and, of course, financial and budget planning.

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