Human resource management field is my future profession of choice. Therefore, a proper understanding of the relationship between financial accounting and human resource management is of great importance. In part 1, transactions such as recording sales both in cash and on credit to customers, receiving cash payments of customers’ owed invoices, and purchasing fixed assets from various suppliers were discussed. In this paper, examples showing the extent of the application of financial accounting in my future role as a human resource manager will be provided. Financial accounting plays a major role in human resource management as it enables human resource managers in regarding budgeted products/items which may include performance evaluation, staffing, training, incentives, and recruitment (Warren et al., 2017). This is done while more attention is paid on their dollar benefit to the company as well as their cost. It is also important in the budgeting process as it allows them to appreciate corporate cash flow.
As a human resource manager in the future, my job will be to oversee individuals’ assets to take the company/organization towards its targets and goals. As such, there are several transactions that human resource managers encounter in their field or professional life. Supplies are an integral part of any organization and the human resource manager will have the responsibility to ensure that they are properly ordered, tracked, and documented. These transactions are important in helping the organization in budget preparation, calculating expenses, and in generating average monthly allowances (Warren et al., 2017). Additionally, supplies transactions assist in on hand supplies and inventory acting as alerts to the entire organizational management in case of any theft or overuse. Accounts receivable is an important transaction for any given organization (Warren et al., 2017). This is because of its role in ensuring sales on account are fully paid and its effect on revenue generation. Another important transaction for an organization or company is the discussion of compensation packages as well as the extension of employees’ contracts/offers.
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Supply transactions and other operating expenses are used in the determination of the net income within the official income statement (Warren et al., 2017). Other supplies are classified together with assets on the balance sheet. This also includes wages which are included in operating expenses. Wages payable are classified as current liabilities on the balance sheet. Various accounting transactions have a specific correlation with one another. Account receivable, however, does not impact the organization net income and thus have no effects on the income statement (Warren et al., 2017). However, when payment collection is done, it is credited to sales revenue. When entered in a correct manner, these transactions assist in reflecting the net organization’s revenues after subtracting not only the operating expenses but also the liabilities and assets.
As the new department manager wanting to fix my predecessor errors in relation to utilization of cash basis of accounting, my preferred accounting system will be the accrual accounting system which is a GAAP-based requirement (Bragg, 2018). This will ensure the separation of responsibilities as far as custody of assets, accounting records, and general operations are concerned (Bragg, 2018). The internal controls to be targeted for implementation will be those of cash payments, information and communication regulations, and cash receipts (Bragg, 2018). The next action will be to carry out investigations on income statements, monthly journal entries, retained earnings statements, and cash flow statements in on the targeted/selected accounting period with mistakes/errors (Bragg, 2018). This will aid in the identification of the entries to be adjusted. Cash basis of accounting requires that accounting expenses and revenues are made part of the income statement during cash payment or receipt. Following the investigation of the financial statements, the transformational process from the cash basis of accounting to the accrual basis of accounting is undertaken. In accrual basis of accounting, revenues are part of the income statement when a product is delivered or when a service gas be provided. It is a six-step process with accrued expenses being the first step (Bragg, 2018). This step is followed by the subtraction of cash payments on expenses incurred during the previous accounting period. This means that there will be a reduction in the starting retained earnings balance. The third step will be the addition of prepaid expenses while unutilized parts of the prepaid expenses are made part of an asset account. Additionally, there will be the addition of account receivable to record account receivable, as well as every single billing sale, is given to customers. The next step will include the subtraction of cash receipts from the starting previous accounting period’s sales. The final step involves the subtraction of customer payments whereby any advance payment by any customer is which had been reported as sales is corrected by recording them as short-term liabilities until such a time when the service has provided or product has been delivered.
The beginning of the accounting cycle is marked by daily journal entries before growing into financial statements that can be used to generate the interpretation of the entire organization worth using its assets, income, and debts. Financial accounting transactions are utilized in various business settings and a number of professions which include human resource management. The size of the business determines the basis of accounting basis that suits it best. In this regard, the cash basis of accounting can be used for small businesses while larger business or organizations have to utilize the accrual basis of accounting if they are to accurately generate financial statements. The transformation from one basis of accounting to another is cumbersome but is a necessary decision towards a proper and accurate regulation, recording, and reporting of the organization’s financial summary, financial history, revenues targets, financial predictions, and financial transactions.
References
Bragg, S. (2018, February 18). How to convert cash basis to accrual basis accounting. Retrieved April 22, 2019, from https://www.accountingtools.com/articles/how-to-convert-cash-basis-to-accrual-basis-accounting.html
Warren, C.S., Reeve, J.M., Duchac, J. (2017). Corporate Financial Accounting (14th ed.). Boston, MA: Cengage Learning.
