Human resources were always considered as liabilities but in the evolving scenario, organizations have started recognizing them as assets. For valuation of human resources, Human Resource Accounting (HRA) is being used by a few organizations. This concept is still in a developing stage. We know that every coin has two sides, and similarly, HRA has its own advantages and disadvantages. If human resources are to be valued correctly, then organizations can use this data as a tool for future decision making in matters related to human resources which is directly connected to the profitability of organization. As this concept is still in a nascent state, there is no formal method as yet, which is universally accepted. This article focuses on the development of the concept, definition, importance and limitations of HRA.

In any business, 5Ms are very important, i.e., Men, Machine, Money, Material and Methods. Consider a situation where an organization is using excellent machine, material and has good potential market using good methods but doesn't have competent, well-trained, qualified men. Then, no doubt, its business will not thrive. To avoid such situations, nowadays every organization is giving importance to their human resource. If organization is having good, competent and trained human resource, then chances of the organization's failure are very minimal. Other resources cannot be operated effectively, if adequate and competent human resource is not there.

Human resource is nothing but the summation of skills, quality, knowledge, innovative thinking, creativity, intuition and experience possessed by all people. In management, we always say that there should be the right person at the right place, but organizations always fail due to their negligence towards human resource.

Organizations give more importance to assets like machinery, building, furniture, etc., and valuation of an organization is based on the profit made during the financial year. It has been years since human resource was accepted as an asset, but there still isn't any generally-accepted accounting system for this important asset, i.e., methods to show it in financial statements.

Accounting World Magazine, Human Resource Accounting, Financial Statements, Decision Making Process, Conventional Accounting Policies, Traditional Accounting System, Information Systems, Human Resources, Human Resource Management, Physical Assets, National Thermal Power Corporation, NTPC, Oil and Natural Gas Commission, ONGC.