Human Resource Accounting 

Human Resource Accounting tracks and manages employees’ costs and values, including
performance, compensation, benefits, and training. HR professionals use various tools to
track and analyse data, such as employee surveys, performance reviews, and compensation
and benefits reports. In addition to tracking employee performance, HR professionals also
need to track the performance of the organisation as a whole. For example, HR professionals
need to track the success of recruitment and retention efforts as well as the success of
initiatives that improve employee morale and satisfaction.

Human Resource Accounting is necessary for any organisation that wants to know how well
its employees are performing and how to improve more. In addition to tracking employee
performance, HR professionals also need to track the success of recruitment and retention
efforts as well as the success of initiatives that improve employee morale and satisfaction.

In order to track employee performance effectively, HR professionals need to use a variety of

tools. One important tool is an employee survey. An employee survey is a method for
collecting data from employees about their experiences with their employers. Another
essential tool is a performance review. A performance review is a method for evaluating an
employee’s performance against desired standards. Finally, HR professionals also need to
track compensation and benefits reports. A compensation and benefits report is a report that
provides information about an employee’s salary, benefits, and other compensation details.

Features of Human Resource Accounting:

 Human Resource Management: It involves everything from hiring and firing to

training and development.
 Employee Benefits: This includes things like health insurance and retirement benefits.
 Payroll: Includes things like payroll taxes, employee overtime costs, and other
expenses related to compensation and payroll processes
 Compensation: Things like salary, bonuses, stock options, and other forms of
payment that employees receive are included.
 Human Capital: Includes things like work hours, absenteeism, turnover rates, etc.
 Records Management: This involves everything from keeping track records to
tracking equipment usage.
 Benefits Administration: This involves keeping track of benefits provided by
employers, such as vacation days or paid time off.
 Recruitment & Selection - This involves recruiting new employees as well as
screening job applicants to fit into the organisation’s culture.
HR accounting process involves the following:

 Identifying and understanding the needs of the organisation and its employees
 Identifying and developing the appropriate human resources
 Implementing effective recruitment, selection, training, development, and
compensation programs
 Maintaining an accurate and up-to-date HR system
 Ensuring that all employees are treated equally and fairly
 Maintaining an accurate and up-to-date payroll system

Methods of Human Resource Accounting

 Historic Expense: Historical costs are based on actual human resources expenses.

There are two types of such expenses: purchase expenses and learning expenses.
Training and development expenses are included in the acquisition price. Although this
approach is easy to apply, it does not show the true value of human assets.
 
 Replacement Price: Unlike historical price, which considers the actual price sustained
by workers, substitute expense considers the nationwide cost of replacing today's
employees.

In order to calculate the replacement price, various kinds of expenditures are

considered, both in terms of procurement and price determination. The substitute
expense is usually much higher than the historic expense.
 
 Requirement Expense: Rather than using historic or replacement prices for valuing
human assets, some businesses use basic prices just as they do for physical and
monetary assets. Based on their hierarchical placements, employees of a company are
categorised into different groups for utilising common costs. Every classification of a
staff member is dealt with in terms of standard expenses, and their value is
determined.
 
 Present value of future earnings: In this method, the value of future earnings for a
number of individuals is approximated as much as their retired life. It is marked down at
a predetermined price to acquire the here-and-now value of such revenues. Today's
worth of future revenues is used when it comes to financial assets, but this approach
does not result in an appropriate measurement of human resources.
 
 Procurement Cost Approach: A key aspect of this method is the capitalisation of
historical costs. The company incurs these costs to improve its business performance.
The expenses incurred in employment are capitalised and written off over a period of
time. The unamortised portion of the cost has to be written off against the revenue and
loss account of the particular year.
 
  Replacement Cost Approach: Under this technique, one considers how much it costs
to replace existing sources as well as, thus, how much it costs to replace a company's
current resources. The method also stands for a current market problem. This
approach is often repetitive unless the company wishes to replace its current
resources. This, too, is a tough approach as frequently the substitute is not identical.
 
 Present Value of Future Profits Method: The capitalisation of wage technique is
another method to capitalise wage income. It involves estimating future earnings up to
the employee's or worker's retirement age and marking the worth accordingly to
acquire the present value.
 
 Anticipated feasible worth: The above techniques reviewed thus far are based on
price consideration. For that reason, these methods might give information for
theoretical objectives but do not mirror the real worth of human assets compared to
these techniques.
 
 Economic Value Method: The economist refers to an asset's current market value as
the asset's 'value.' This approach has a number of strengths, but it requires a certain
amount of work. First, the future benefits and an appropriate interest (discount) rate are
estimated. Then, the present value of future benefits is calculated.
 
 Competitive Bidding Method: This is also known as the opportunity cost method.
Opportunity cost is the tangible benefit of choosing an alternative path. Once HRA has
been audited, each bidder's total amount of capital expended is recorded. The return
on investment is determined by comparing the dollar amount bid with the amount
spent.

Benefits of Human Resource Accounting

 Assists in Determining ROI - HRA is an accounting system that recognises the

expense made on an organisation's personnel. Once the investment is computed, an
organisation can quickly calculate the exact ROI by determining the earnings made by
the organisation. This will assist in monitoring how much they should spend on the
personnel to attain optimum ROI.
 
 Inspires Employees - Staff members get motivated to enhance themselves once they
familiarise their real value in the eyes of the personnel accounting system of the
organisation. The amount invested in them will motivate them to boost the output
symmetrical to the organisation's financial investment.
 
 Boosts Process of Choice Making - HRA works as a centre to get information about
the actual value of personnel operating in the organisation. This information assists the
administration in making appropriate choices regarding organisational concerns.
 
 Sign of Health of the organisation - HRA functions as an indication of the well-being
of any kind of organisation. The quantity of investment made on the personnel of any
 organisation aids in gauging the amount of revenue that might be gained in the future.
 
 Assist in Figuring Out the Requirement of Recruitment - HRA reports on the
changes in obtaining returns as well as how much expense needs to be made on the
manpower of the organisation. If the earnings are high demand for hiring brand-new
staff members, and if no earnings are gained, no more employment occurs. These
decisions are based on the information given by HRA.
 
 Ascertains Unfavorable Results of the Programs - HRA system additionally assists
in establishing the negative impacts of numerous programs running in the organisation.
 
 Facilitates Organising and Executing HR Plans - HR policies of an organisation
include plans regarding human resources functions such as promotion, training,
demotion, transfer etc. Appropriate organisation and implementation of these plans are
vital for every organisation's smooth functioning. This feature is controlled by
the Human Resource Accounting system of an organisation.

GST- Goods & Service Tax

GST is referred as Goods and Services Tax. It is an indirect tax that was implemented to
replace a variety of previous indirect taxes, including the value added tax, service tax,
purchase tax, excise duty, and others. GST is a tax that India imposes on the supply of
specific products and services. There is only one tax that is imposed in India.

GST in India

 Manufacturer: The manufacturer will have to pay GST on the raw material that is
purchased and the value that has been added to make the product.
 Service Provider: In this case, the service provider will be responsible for paying GST
on both the product's purchase price and the value added to it. However, the
manufacturer's tax payment may be deducted from the total GST that must be paid.
 Retailer: It must be paid by the retailer on both the product they bought from the
distributor and the margin they added. However, the retailer's tax payment may be
deducted from the total amount of GST that must be paid.
 Consumer: GST must be paid on the product that has been purchased.
Types of GST in India

1. Central Goods and Services Tax : CGST is charged on the intra state supply of
products and services.
2. State Goods and Services Tax : SGST, like CGST, is charged on the sale of products
or services within a state.
3. Integrated Goods and Services Tax : IGST is charged on inter-state transactions of
products and services.
4. Union Territory Goods and Services Tax : UTGST is levied on the supply of
products and services in any of the Union Territories in the country, viz. Andaman and
Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and
Chandigarh. UTGST is levied along with CGST.

Entities and Individuals must register for Goods And Services Tax are:

 E-commerce aggregators
 Individuals who supply through e-commerce aggregators
 Individuals who pay tax as per the reverse change mechanism
 Agents of input service distributors and suppliers
 Non-Resident individuals who pay tax
 Businesses that have a turnover that is more than the threshold limit
 Individuals who have registered before the GST law was introduced

Advantages of GST

The following are the advantages of goods and services tax in India

1. Regulation of the unorganized sector

2. E-commerce operators no longer suffer from differential treatment
3. Fewer complications
4. Composition scheme
5. Registration process and filing of returns are simple
6. Higher threshold
7. Elimination of the cascading tax effect
GST Council

Any recommendations that are made to the State and Union Government regarding any
issues that are related to GST is done by the GST Council. The chairman of gst council is
Union Finance Minister of India. The other members of the GST Council are the Union State
Minister of Revenue or Finance of all the states.

Responsibility Accounting
Responsibility accounting is a kind of management accounting that is accountable for all the
management, budgeting, and internal accounting of a company. The primary objective of this
accounting is to support all the Planning, costing, and responsibility centres of a company.
The accounting generally includes the preparation of a monthly and annual budget for an
individual responsibility centre. It also accounts for the cost and revenue of a company, where
reports are accumulated monthly or annually and reported to the concerned manager for the
feedback. Responsibility accounting mainly focuses on responsibilities centres.
For instance, if Mr X, the manager of a unit, plans the budget of his department, he is
responsible for keeping the budget under control. Mr X will have all the required information
about the cost of his department. In case, if the expenditure is more than the allocated budget
than Mr X will try to find the error and take necessary action and measures to correct it. Mr X
will be personally accountable for the performance of his unit.

Essential Features of Responsibility Accounting

1. Inputs and Outputs or Costs and Revenues:

• The implementation and maintenance of responsibility accounting system is based upon

information relating to inputs and outputs.

• The physical resources utilized in an organisation such as quantity of raw material used
and labour hours consumed, are termed as inputs. These inputs expressed in the
monetary terms are known as costs.

• Similarly, outputs expressed in monetary terms are called revenues.

• Thus, responsibility accounting is based on cost and revenue information.

2. Planned and Actual Information or Use of Budgeting:

• Effective responsibility accounting requires both planned and actual financial information.
• It is not only the historical cost and revenue data but also the planned future data which is
essential for the implementation of responsibility accounting system.

• It is through budgets that responsibility for implementing the plans is communicated to each
level of management.

• The use of fixed budgets, flexible budgets and profit planning are all incorporated into one
overall system of responsibility accounting.

3. Identification of Responsibility Centres:

• The whole concept of responsibility accounting is focused around identification of

responsibility centres.

• The responsibility centres represent the sphere of authority or decision points in an

organisation. In a small firm, one individual or a small group of individuals, who are usually the
owners may possibly manage or control the entire organisation.

• However, for effective control, a large firm is, usually, divided into meaningful segments,
departments or divisions. These sub- units or divisions of organisation are called responsibility
centres.

• A responsibility centre is under the control of an individual who is responsible for the control
of activities of that sub-unit of the organisation.

• This responsibility centre may be a very small sub-unit of the organisation, as an individual
could be made responsible for one machine used in manufacturing operations, or it may be
very big division of the organisation, such as a divisional manager could be responsible for
achieving a certain level of profit from the division and investment under his control.

• However, the general guideline is that “the unit of the organisation should be separable and
identifiable for operating purposes and its performance measurement possible”.

4. Relationship between Organisation Structure and Responsibility Accounting

System:

• A sound organisation structures with clear-cut lines of authority—responsibility relationships

are a prerequisite for establishing a successful responsibility accounting system.

• Responsibility accounting system must be so designed as to suit the organisation structure

of the organisation.
• It must be founded upon the existing authority- responsibility relationships in the
organisation.

• In fact, responsibility accounting system should parallel the organisation structure and
provide financial information to evaluate actual results of each individual responsible for a
function.

5. Assigning Costs to Individuals and Limiting their Efforts to Controllable Costs:

• After identifying responsibility centres and establishing authority-responsibility relationships,

responsibility accounting system involves assigning of costs and revenues to individuals.

• Only those costs and revenues over which an individual has a definite control can be
assigned to him for evaluating his performance

• The following guidelines should be followed while assigning of costs:

 If the person has authority over both the acquisition and use of the services, he should
be charged with the cost of these services.

 If the person can significantly influence the amount of cost through his own action, he
may be charged with such costs.

 Even if the person cannot significantly influence the amount of cost through his own
direct action, he may be charged with those elements with which the management
desires him to be concerned, so that he will help to influence those who are
responsible.

6. Performance Reporting:

• A control system to be effective should be such that deviations from the plans must be
reported at the earliest so as to take corrective action for the future. The deviations can be
known only when performance is reported.

• Responsibility accounting system is focused on performance reports also known as

‘responsibility reports’, prepared for each responsibility unit.

• Unlike authority which flows from top to bottom, reporting flows from bottom to top. These
reports should be addressed to appropriate persons in respective responsibility centres.

• The reports should contain information in comparative form as to show plans (budgets) and
the actual performance and should give details of variances which are related to that centre.
• The variances which are not controllable at a particular responsibility centre should also be
mentioned separately in the report.

• To be effective, the reports should be clear and simple. Use of diagrams, charts,
illustrations, graphs and tables may be made to make them attractive and easily
understandable.

Advantages of Responsibility Accounting:

 It urges the management to acknowledge the company structure and checks who is
accountable for what and fix the problems.
 It enhances attention and awareness of the managers as they have to explain the
variations for which they are responsible.
 It helps to compare the achievements between the pre-planned goals and actual
results.
 It creates a sense of efficiency within individual employees as their work and
achievements will be reviewed.
 It guides the management to plan and structure the future expenditure and revenue of
a company.
 Being a cost control tool, it creates ‘cost consciousness’ among workers.
 Individual and company goals are established and communicated in the best way.

 It improves and controls the company’s operating activities for an effec tive and
efficient outcome.

 Simplifies the report structure and guides to prompt reporting.