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Human resources accounting (HRA), also known as human resource accounting or human resource management accounting, is a type of accounting that seeks to determine the cost and value of people, also known as human capital, working in an organization. The value of an organization's human capital is not only calculated in terms of salaries and benefits. HRA also considers how much money is spent to hire and train an employee as well as the employee's future value to the company. Since many of the factors involved in HRA are not definite, this type of accounting cannot be precise. Still, HRA is a useful and often used tool among HR departments.
HRA is a sort of economic indicator of what an organization spends on its human capital. This value is one of the more precise aspects of HRA as it basically consists of money spent on recruiting, training, salary and benefits of existing employees in previous months and years.
This type of accounting is also a good measurement tool from which future hirings, firings and other changes in personnel needs may be based. It forecasts the anticipated value of existing employees as well as potential future employees. Anticipated value could be estimated by considering the education and experience level of an employee or potential employee. By assessing these figures, management can determine whether to invest more into existing employees by way of additional training, or whether the organization would be best served by recruiting new human resources.
Trends can also be identified via human resources accounting. For example, if there is a lot of employee turnover at a company, HRA will help uncover the extent and potentially the cause. Perhaps HRA will show that too much money is being spent on advertising for positions, and not enough money is being spent on employee education and training.
By putting dollars and figures to an employee, HRA can be reflected in the financial statements of an organization. In other words, HRA translates personnel into assets. These assets, in turn, can be reflected on a company's balance sheet.
Since HRA assigns value to human beings, it is not always precise. As a result, it's considered to be a behavioral form of accounting, and not an exact science. Adding to it's imprecision, HRA can sometimes include non-numerical data as well.
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