Posts Tagged ‘Accounting’

Keep control of your business finance using accounting software

In the past people hated keeping accounts. It was time consuming, and boring. People would write something in a book, but most of the time it did not mean anything.

Bank accounts were not balanced, because it was not something a lot of people understood. What do you do when you spend money out of the business account and it was for your own use? It was too confusing, that is why you pay your accountant.

That is true, but it also meant that a business person had no idea what the true financial affairs were for their company. Even, if they did have some idea, often it didn’t make sense to them.

They would check their bank balance, and too often the balance showing either told them how much they could spend or how much they owed the bank.

But that has changed now. No longer is accounting a hidden secret, not when you purchase and use accounts software.

You see a product that will enhance your business but can you afford to buy it or not? Now you can know exactly what money is available to spend on that product.

You no longer have pieces of paper around your house and office with notes, pay this supplier by a certain date, or chase up that customer if they do not pay by a certain date.

You now have it all automated, as you check your debtors and creditors on a daily basis. Nothing is left to chance. Having accounting software makes you wonder how you ever managed without it before.

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Accounting Business Finance Outsourcing: Ensure a Professional Approach

 

Outsourcing is emerging as one of the core strategies by ventures worldwide, with an eye on carving a niche in the competitive markets. It is basically working on a mutual terms according to the contracts signed between companies or individuals to increase the profit base while minimizing the costs. When it comes to accounting business finance outsourcing process, it encompasses accounting functions like payroll, billing and data entry. While some organizations outsource only major services, others prefer to outsource complete operations, including all important information technology and business process outsourcing. The crucial accounting projects involve hiring the service providers which might be both internal and external to complete them within the given deadlines. Here, the contracts signed can involve hundreds or millions of dollars yet there are certain disadvantages as well.

 

Accounting processes are basically utilized in the financial management. Financial information is processed in these functions and monetary allocations raised are used over a period of time. Organizations nowadays, hire the accounting business finance outsourcing personnel for the same and also in procuring cash amounts owned to it by the customers. Widely termed as factoring, it has gained immense popularity over the years and in this process a company is able to eliminate the waiting period ranging between a month to a quarter. The procedure is further accentuated by sending invoices or bills directly to the clients but comes with a warning though. Accounting business finance outsourcing with the help of factoring procedure can prove to be a useful tool allowing a company to focus its attention to core functions of business development.

 

The concept of factoring is further explained by a manufacturing company if it is selling cell phones to a large retailer. After the delivery of said stuff, an invoice is sent to the retailer through the factoring firm for payment of the amount. The contract terms and the face value of an invoice require a discount fee which is paid to the manufacturer by the factoring firm. An organization has the advantage of procuring immediate cash through accounting business finance outsourcing process which further helps in meeting the demand supply chain on time. In this case, a retailer pays the factor when the bill is about to be paid to manufacturer. India in this case, is the best outsourcing option for business establishments as far as the beneficial aspects of accounting are concerned. Accounting business finance outsourcing services hired from here fit in perfectly with the demands of any business organization. The standards of work are benchmarks in themselves and the charges are quite compatible with the requirements of a client.

 

A word of caution should be heeded in this case because of the existence of fraudulent practices in this field. But, this can be avoided with the help of internet which helps in a proper research and checking of the backgrounds before entirely relying on the services of the outsourcing firm. One of the main objectives of accounting business finance outsourcing process is the value creation and organizations worldwide, outsource their finance and accounting functions. India being on the radar of outsourcing services comes top on their factoring list. One of the most popular functions of these services is payroll followed by tax compliance and planning whereby the CEO’s and CFO’s come forward as chief decision makers.

 

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Accounting Business Finance Outsourcing: Mantra to Take Your Business a New Height

Outsourcing occupies a special place in modern world of business because of increasing workload and competition in the market. Accounting, one of the crucial aspects of business is widely being outsourced, to take the business organization to a new height. Keeping a regular track of a huge accounting book is a tedious job that requires a lot of technicalities and efficiency. A company cannot afford to devote that much time and effort to the job, as it may lag behind on its core activity that can affect on the company’s growth. Accounting business finance outsourcing can help the company deal with the challenges and possible gains from efficient accountancy without spending much of its time and money.

Maintaining a huge volume of financial record is not an easy job and this is one of the prime reasons that companies are opting for accounting business finance outsourcing It elevates the company in terms of profit and this is the reason why this trend is becoming very popular these days. The accounting business finance outsourcing firms work very efficiently and keep a track of company’s transactions on the daily basis. They also help the top management understand more comprehensively the financial standing of the company from a wider perspective. Accounting business finance outsourcing plays a crucial role in the progress and development of any business organization.

Outsourcing the accounting and financial task of the client to competent professionals is highly beneficial because of the expert and cost effective services offered by these companies. Accounting business finance outsourcing firms have in their payroll capable professionals who have a number of years of experience in the field. Once you hire them, be assured that they will efficiently and professionally deal with your complex accounting job. Getting the same work done in house may cost you much more because of the need to pay him a handsome pay package and the related overhead expenses. You do not have to worry about the accuracy and quality of work if you are hiring an accounting business finance outsourcing firm.

You need to do a thorough background check before handing over the work to an accounting business finance-outsourcing firm. The firm’s capability, reputation, credibility and performance must be meticulously researched before taking a decision on awarding the project to any outsourcing firm. Because you will be sharing your private data with the firm, you have to be extra careful in making sure that your data is properly protected and there are sound security systems in place within the accounting business finance outsourcing firm. Your accounting data is very critical and it is always advisable to keep a back up of all the data that you are sharing with the outsourcing firm to help you in the time of any crisis. You also have to take into account any special needs you’re your company may have for carrying out your accounting activities, and the outsourcing firm that you select should have the required expertise and experience in dealing with these specialized activities.

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HUMAN RESOURCE ACCOUNTING

Introduction

The past few decades have witnessed a global transition from manufacturing to service based economies. The fundamental difference between the two lies in the very nature of their assets. In the former, the physical assets like plant, machinery, material etc. are of utmost importance. In contrast, in the latter, knowledge and attitudes of the employees assume greater significance. For instance, in the case of an IT firm, the value of its physical assets is negligible when compared with the value of the knowledge and skills of its personnel. Similarly, in hospitals, academic institutions, consulting firms etc., the total worth of the organization depends mainly on the skills of its employees and the services they render. Hence, the success of these organizations is contingent on the quality of their Human Resource- its knowledge, skills, competence, motivation and understanding of the organizational culture. In knowledge –driven economies therefore, it is imperative that the humans be recognized as an integral part of the total worth of an organization. However, in order to estimate and project the worth of the human capital, it is necessary that some method of quantifying the worth of the knowledge, motivation, skills, and contribution of the human element as well as that of the organizational processes, like recruitment, selection, training etc., which are used to build and support these human aspects, is developed. Human resource accounting (HRA) denotes just this process of

quantification/measurement of the Human Resource.

 

Definition

Assigning, budgeting, and reporting the cost of human resources incurred in an organization, including wages and salaries and training expenses.

HRA scenario

It is true that worldwide, knowledge has become the key determinant for economic and business success, but Indian companies focus on ‘Return on Investment’ (RoI), with very few concrete steps being taken to track ‘Return on Knowledge’.

What is needed is measurement of abilities of all employees in a company, at every level, to produce value from their knowledge and capability. “Human Resource Accounting (HRA) is basically an information system that tells management what changes are occurring over time to the human resources of the business. HRA also involves accounting for investment in people and their replacement costs, and also the economic value of people in an organization,” says P K Gupta, the director of strategic development-intercontinental operations, of Legato Systems India. The current accounting system is not able to provide the actual value of employee capabilities and knowledge. This indirectly affects future investments of a company, as each year the cost on human resource development and recruitment increases.

Experts point out that the information generated by HRA systems can be put to use for taking a variety of managerial decisions like recruitment planning, turnover analysis, personnel advancement analysis and capital budgeting, which can help companies save a lot of trouble in the future.

Information management in HRA

Like any accounting exercise, the HRA too depends heavily on the availability of relevant and accurate information. HRA is essentially a tool to facilitate better planning and decision making based on the information regarding actual HR costs and organizational returns. The kind of data that needs to be managed systematically depends upon the purpose for which the HRA is being used by an organization.

For example, if the purpose is to control the personnel costs, a system of standard costs for personnel recruitment, selection and training has to be developed. It helps in analyzing projected and actual costs of manpower and thereby, in taking remedial action, wherever necessary. Information on turnover costs generates awareness regarding the actual cost of turnover and highlights the need for efforts by the management towards retention of manpower.

Accountability in the management process is often enhanced when information involving an evaluation of managerial effectiveness is generated.

Finally, information on the intangibles like intellectual capital/human capital becomes necessary to measure the true worth of the organization. This information, though unaudited, needs to be communicated to the board and the stockholders

 

 

Measurement in HRA

 

The biggest challenge in HRA is that of assigning monetary values to different dimensions of HR costs, investments and the worth of employees. The two main approaches usually employed for this are:

1. The cost approach which involves methods based on the costs incurred by the company, with regard to an employee.

2. The economic value approach which includes methods based on the economic value of the human resources and their contribution to the company’s gains. This approach looks at human resources as assets and tries to identify the stream of benefits flowing from the asset.

 

Economic value approach

The value of an object, in economic terms, is the present value of the services that it is expected to render in future. Similarly, the economic value of human resources is the present worth of the services that they are likely to render in future. This may be the value of individuals, groups or the total human organization. The methods for calculating the economic value of individuals may be classified into monetary and non-monetary methods.

 

 

Monetary Measures for assessing Individual Value

 

a) Flamholtz’s model of determinants of Individual Value to Formal Organizations

According to Flamholtz, the value of an individual is the present worth of the services that he is likely to render to the organization in future. As an individual moves from one position to another, at the same level or at different levels, the profile of the services provided by him is likely to change. The present cumulative value of all the possible services that may be rendered by him during his/her association with the organization is the value of the individual.

b) Flamholtz’s Stochastic Rewards Valuation Model

The movement or progress of people through organizational ‘states’ or a role is called a stochastic process. The Stochastic Rewards Model is a direct way of measuring a person’s expected conditional value and expected realizable value. It is based on the assumption that an individual generates value as he occupies and moves along organizational roles, and renders service to the organization. It presupposes that a person will move from one state in the organization, to another, during a specified period of time.

 Non- monetary methods for determining value

The non-monetary methods for assessing the economic value of human resources also measure the Human Resource but not in dollar or money terms. Rather they rely on various indices or ratings and rankings. These methods may be used as surrogates of monetary methods and also have a predictive value. The non-monetary methods may refer to a simple inventory of skills and capabilities of people within an organization or to the application of some behavioral measurement technique to assess the benefits gained from the Human resource of an organisation.

1. The skills or capability inventory is a simple listing of the education, knowledge, experience and skills of the firm’s human resources.

2. Performance evaluation measures used in HRA include ratings, and rankings. Ratings reflect a person’s performance in relation to a set of scales. They are scores assigned to characteristics possessed by the individual. These characteristics include skills, judgment, knowledge, interpersonal skills, intelligence etc. Ranking is an ordinal form of rating in which the superiors rank their subordinates on one or more dimensions, mentioned above.

3. Assessment of potential determines a person’s capacity for promotion and development. It usually employs a trait approach in which the traits essential for a position are identified. The extent to which the person possesses these traits is then assessed.

4. Attitude measurements are used to assess employees’ attitudes towards their job, pay, working conditions, etc., in order to determine their job satisfaction and dis satisfaction

 

Conclusion

The accounting of human resources can be seen as just as much a question of philosophy as of technique. This is one of the reasons behind the variety of approaches and is further underlined by the broad range of purposes for which accounting human resources can be used, e.g. as an information tool for internal and/or external use (employees, customers, investors, etc.), and as a decision-making tool for human resource management (investments in human resources as well as personnel management in gene

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HUMAN RESOURCE ACCOUNTING (HRA) PRACTICES IN INDIA

Success of corporate undertakings purely depends upon the quality of human resources. It is accentuated that; Human element is the most important input in any corporate enterprise. The investments directed to raise knowledge; skills and aptitudes of the work force of the organization are the investments in human resource. In this context, it is worth while to examine and human resource accounting practices in corporate sector in India.

Human resource accounting is of recent origin and is struggling for acceptance.  .It is clearly said that, Human resources accounting is an accounting measurement system and a large body of literature has been published in the last decade setting for the various procedures for measurement.  At the same time the theory and underlying concepts of accounting measurement have received sizeable attention from academics and a substantial body of literature has developed. The conventional accountings of human resources are not recognized as physical or financial assets. 

  Though Human Resources Accounting was introduced way back in the 1980s, it started gaining popularity in India after it was adopted and popularized by NLC.  Human Resources accounting, also known as Human Asset Accounting, involved identifying, measuring, capturing, tracking and analyzing the potential of the human resources of a company and communicating the resultant information to the stakeholders of the company.  It was a method by which a cost was assigned to every employee when recruited, and the value that the employee would generate in the future.  Human Resource accounting reflected the potential of the human resources of an organization in monetary terms, in its financial statements.

Even though the situation prevails, yet, a growing trend towards the measurement and reporting of human resources particularly in public sector is noticeable during the past few years.  BHEL, Cement Corporation of India, ONGC, Engineers India Ltd., National Thermal Corporation, Minerals and Metals Trading Corporation, Madras Refineries, Oil India Ltd., Associated Cement Companies, SPIC, Metallurgical and Engineering consultants India Limited, Cochin Refineries Ltd. Etc. are some of the organizations, which have started disclosing some valuable information regarding human resources in their financial statements. It is needless to mention here that, the importance of human resources in business organization as productive resources was by and large ignored by the accountants until two decades ago. 

During the early and mid 1980’s, behavioral scientists attacked the conventional accounting system for its failure to value the human resources of the organization along with its other material resources.  In this changing perspective the accountants were also called upon to play their role by assigning monetary value to the human resources deployed in the organization. Human Resource Accounting involves the dimension of cost incurred by the organization for all the personnel function.  Hence the issue is to be addressed is how to measure the economic value of the people to the organization and various cost based measures to be taken for human resources. The two main components of Human Resources Accounting were investment related to employees and the value generated by them.  Investment in human capital included all costs incurred in increasing and upgrading the employees’ skill sets and knowledge of human resources.  The output that an organization generated from human resources was regarded as the value of its human resources.  Human Resources accounting is used to measure the performance of all the people in the organization, and when this was made available to the stakeholders in the form of a report, it helped them to take critical investment decisions.All the models stressed that human capital was considered an investment for future earnings, and not expenditure.

   For valuing human resources, different models have been developed.  Some of them are opportunity cost Approach, standard cost approach, current purchasing power Approach, Lev and Schwartz present value of future earnings Model Flam holtz’s stochastic rewards valuation Models etc.  Of these, the model suggested by Lev and Schwartz has become popular.  Under this method, the future earnings of the human resources of the organization until their retirement is aggregated and discounted at the cost of capital to arrive at the present value.

Human resources accounting system consists of two aspects namely:

a)      The investment made in human resources

b)      The value human resource 

Measurement of the investments in human resources will help to evaluate the charges in human resource investment over a period of time.  The information generated by the analysis of investment in human resources has many applications for managerial purposes.  The organizational human performance can be evaluated with the help of such an analysis.  It also helps in guiding the management to frame policies for human resource management.  The present performance result will act as input for future planning and the present planning will have its impact on future result.  The same relationship is also applicable to the areas of managerial applications in relation to the human resource planning and control.Investment in human resources can be highlighted under two heads, namely,

 Investment pattern:

The human resource investment usually consists of the following items:-

1)      Expenditure on advertisement for recruitment

2)      Cost of selection

3)      Training cost

4)      On the job training cost

5)      Subsistence allowance

6)      Contribution to provident Fund

7)      Educational tour expenses

8)      Medical expenses

9)      Ex-gratia payments

    10) Employee’s Welfare Fund

All these items influence directly or indirectly the human resources and the productivity of the organization.

 Investment in current costs

After analyzing the investment pattern in the human resources of an organization the current cost of human resources can be ascertained.  For this purpose, current cost is defined as the cost incurred with which derives benefit of current nature.  These are the costs, which have little bearing on future cost.  Thus, the expenses incurred for the maintenance of human resources are termed as current costs.  Current cost consists of salary and wages, Dearness allowance, overtime wages, bonus, house rent allowance, special pay and personal pay.

 Amidst this background, it is significant to mention  that  the importance and value of human assets were  recognized in the early 1990s when there was a major increase in employment in firms in service, technology and other knowledge-based sectors.  In the firms in these sectors, the intangible assets, especially human resources, contributed significantly to the building of shareholder value.  The critical success factor for any knowledge-based company was its highly skilled and intellectual workforce.Soon after, the manufacturing industry also seemed to realize the importance of people and started perceiving its employees as strategic assets.  For instance, if two manufacturing companies had similar capital and used similar technology, then it was only their employees who were the major differentiating factor.  Due to the above development, the need for valuing human assets besides traditional accounting of tangible assets was increasingly experienced.

          From the above discussions, it is felt that, Human resource accounting provides quantitative information about the value of human asset, which helps the top management to take decisions regarding the adequacy of human resources. Hence, It is Concluded that, the Human Resources are an indispensable but often neglected element is thus to be fore grounded into the industrial area for the betterment of the economy.

 

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