It is because of the quality of human resource and proper management of human resource that an organization is able to differentiate itself from others and the organization is able to attain competitive advantage (Blau, 1978).
Organization invests in different projects and assets so that they would yield returns to the company in the long run and the company only invests in them if the expected value of the returns of the projects or assets would be more than their total present investment cost. This theory can also be linked to the human resource of the organization and organizations invest in human resource so that they would yield them profits in the years to come and help the organization to grow as a successful venture. As human resource is the most important asset of the organization and therefore it is imperative for the organization to properly manage its human resource so that the investment yields maximum return (Roslender, 1997). There can be different kinds of investment on human resource like the cost of training, cost associated with recruitment of employees etc and therefore it is important for the management to properly analyse the cost and returns that human resource would yield and for this purpose, human resource accounting has emerged as the solution (Mirvis, & Lawler III, 1984). The concept of human resource accounting is the process by which organization analyses and compares the investment that they have made in the human resource and the benefits that human resource yields to the organization (Pyle, 1970). This information about the cost and benefit of human resource is then conveyed to the interested parties in the organization. This kind of investment is not reported in the conventional financial statements of the organization however this investment is an important one for the long run success of the organization. This report analyses the concept of human resource accounting and how organization uses the concept of human resource accounting along with the importance of human resource accounting. In addition to this, this report also discusses about different methods with which organizations analyses the performance and cost of employees in an organization and limitations of each method and then the conclusion. Concept of human resource accounting and how organization uses it Human Recourse Accounting is the term used to measure the worth and cost of their organization’s employees. Thus, it is the process of identifying, quantifying and communicating the data and information about Human Recourses to the parties involved (Roslender, & Dyson, 1992). It is an effort to identify and report the investments and funds made in organization’s human recourse that are presently not accounted for in the usual accounting practices. Different organizations use the idea of human resource accounting in different ways. With the passage of time, more and more organizations have started implementing this concept considering its importance not only for the human resource department to better evaluate the performance of individuals but as it helps in improving the long profitability of the organization as they are able to identify which human resource or employee is most important to the organization and which human resource should be included in their long run plan and therefore using human resource accounting the management is able to plan things in a better way (Caplan, & Landekich, 1974). However, despite of an increasing use of human resource accounting in different industries around the world, still there are several organizations that do not utilize this concept. Human resource acco