EM: Difference Between HRM and HRD

HRM vs HRD

HRM stands for human resources management, which refers to the art of managing all aspects of the human work force at a company or organization. HRM aims at providing an optimal working environment for employees to fully and freely utilize their skills to their best to achieve the company’s intended output. As human resources management usually applies to big companies and organizations, it has sub categories, among which is HRD, which stands for human resources development. This is a component of HRM that focuses on ‘nurturing’ employee’s skills. Because the process of hiring new employees can be long, expensive and cumbersome, most companies employ the strategy of HRD to promote longevity of employees within the company because through this an employee is likely to progressively scale up the managerial ladder.

Human resources management of a company is often an independent department of its own composed of various sections including recruitment and retention, performance and appraisal management, HRD and compensation sections. But HRD does not only focus on development of skills but also focuses on the personal development of employees. Because peoples’ needs and expectations are ever growing and changing this section of HRM is specifically there to help employees cope with such and prepare them for future uncertainties.

Generally speaking, professionals working within the HRM department must have excellent people skills although this is more so with those particularly working in the HRD section. The HRD section needs to have professionals with impeccable people management skills as they need to be able to realize talent within people from a cross section of backgrounds. The HRD section is concerned with identifying strengths and weaknesses among different employees and devising training means that aim at making those skills complement the other.

HRD aims at developing a superior workforce so that the company and individual employees may achieve their work goals in the customers’ service. It can take on a formal approach as in a classroom or laboratory training in a case where it may apply. It may also take the informal route where an employee receives coaching or simple mentorship from his superior, usually a manager.

Summary:
1. HRD is a sub section of HRM, i.e. HRD is a section with the department of HRM.
2.HRM deals with all aspects of the human resources function while HRD only deals with the development part.
3.HRM is concerned with recruitment, rewards among others while HRD is concerned with employee skills development.
4.HRM functions are mostly formal while HRD functions can be informal like mentorships.

BRANCH ACCOUNTING: STOCK AND DEBTORS SYSTEM

Stock and Debtors System of Accounting for Branch

This method is applicable particularly where there are large numbers of transaction and they are numerous. This method helps the Head Office to make efficient control on branches as there are a few more accounts are to be opened viz:

(a) Branch Stock Account;

(b) Branch Debtors Account;

(c) Branch Stock Adjustment Account;

(d) Goods Sent to Branch Account;

(e) Branch Profit and loss Account.

Sometimes in addition to above, Branch Cash Account, Branch Expenses; Branch Fixed Assets Account etc. may also be opened. It may be recalled that Branch Stock Account, Branch Debtors Account, Branch Cash Account, Branch Expenses Account, Goods Sent to Branch Account have been explained in detail, So, in order to avoid repetition we will only explain here in detail, the most significant and important account under Stock-Debtors System i.e., Branch (Stock) Adjustment Account.

Practically Branch (stock) Adjustment Account deals with the loading on the respective items of goods relating to Branch Stock Account. In short, loading is to be computed on Opening Stock at Branch, Closing Stock at Branch, Goods sent to Branch, Goods Returned by Branch, Shortage of Stock, Surplus of Stock, Lost-in-Transit, Pilferage of Stock, Wastage of Stock, or any Normal and Abnormal Losses.

Branch Stock Adjustment Account is prepared at Invoice Price. The difference between the two sides of this account reveals either gross profits (if credit side to greater than the debit side) or gross loss (if debit side is greater than the credit side).

Entries:

After ascertaining gross profit or gross loss from Branch Stock Adjustment Account, a Branch Profit and Loss Account is to be prepared which will exhibit the net result of the business and the same is transferred to General Profit and Loss Account.

Branch Profit and Loss Account:

Branch Profit and Loss Account exhibits the net result of the operations, i.e., net profit or net loss. This account is credited with the amount of gross profit which is transferred from Branch Adjustment Account, Cost of surplus of stock or any revenue income and this account is debited with all branch expenses, depreciation, cost of abnormal loss of stock, etc. If credit side is greater than the debit side, there will be net profit and vice versa in the opposite case.

Special Note:

It must be remembered that the loss which is related to branch and which is within the jurisdictions and control of branch, the same should be charged against Branch Profit and Loss Account. Otherwise the same should be charged to General Profit and Loss.

Fixed Assets/Liabilities Account:

A separate fixed asset account and liabilities account may be maintained by the Head Office as per usual double entry principle, i.e., in case of fixed asset, with the opening balance of fixed assets, purchase of fixed asset will be added and appear in the debit side and depreciation on fixed asset will appear on the credit side to find out the closing balances of fixed assets.

Treatment of some special Items:

Apparent Profit/Loss:

Sometimes Branch Stock account shows an unusual increase or decrease in the value of stock. This is the result of inaccurate prediction of the possible selling prices of the goods invoiced by Head Office. The goods are invoiced by Head Office after charging a certain expected percentage of profit although the goods are sold, in practice, at either more or less than the expected percentage of profit.

As a result, Branch Stock Account reveals either a ‘surplus’ of stock which is called ‘Apparent Profit’ or a ‘deficit’ of Stock which is called ‘Apparent Loss’ — these are not to be treated as ordinary surplus of shortage of stock.

The entries for this purpose are:

In the case of Apparent Loss, the entries will be reversed.

The students should remember that even after adjusting Normal Loss if their is a surplus in Branch Stock Account, the same should be treated as Apparent Profit and not Surplus of Stock.

Loss-in-transit:

Sometimes a part of the goods may be lost during transit, i.e., before the actual receipt of branch.

The entries for this purpose will be:

Pilferage/Shortage/Wastages of Stock or any Abnormal Loss:

The treatment of these items will be similar to Lost-in-transit stated above.

Surplus of Stock:

Sometimes there may be a surplus of stock, i.e., credit side of Branch Stock Account is higher than the debit side showing a surplus of stock.

The entries are:

Illustration 1:

Red & Co. of Mumbai started a business at Bangalore on 1.4.2006 to which goods were sent at 20% above cost. The branch makes both Cash Sales and Credit Sales. Branch expenses are met from branch cash and balance money returned to H.O. The branch does not maintain double entry books of accounts and necessary accounts relating to branch are maintained by H.O.

Following from the details are given for the year ending 31st March 2007.

Draw up the necessary ledger accounts like Branch Debtors Account, Branch Stock Account, Goods Sent to Branch Account, Branch Cash Account, Branch Expenses Account and Branch Adjustment Account for ascertaining gross profit and Branch Profit and Loss Account for ascertaining branch net profit.

Illustration 2:

Y Ltd. opened a new Branch at Vadodara on 1st Jan. 2009 where goods are sent by H.O. at 25% above cost. All expenses of Branch are met from branch cash and the balance remitted to H.O. Branch sells goods both for cash and credit.

From the following particulars, prepare the necessary accounts in the books of H.O. and ascertain the profit or loss made by Branch for the year ended 31st Dec. 2009 assuming that the branch does not maintain double entry books of accounts:

Illustration 3:

Mithu-Mon Ltd. has two branches, one at Kolkata and the other at Chennai Goods are invoiced to branches at cost plus 50%. Branch remits all cash received to the Head Office and all expenses are met by Head Office.

From the following particulars, prepare the necessary accounts, under the Stock-Debtors System, to show the profit earned at the Branches:

Illustration 4:

A Head Office in Patna has two branches at Kolkata and at Chennai. Goods are consigned to them at loaded figures of 10% and 20% on cost, respectively. During the year, invoices to the Branches are Rs. 44,000 and Rs. 60,000, respectively.

Included in the item Rs. 44,000 are invoiced for goods costing Rs. 12,000 invoiced to Kolkata Branch at Rs. 13,200 which should have been invoiced to Chennai Branch. Sales are all for cash, being Kolkata Branch Rs. 22,000 and Chennai Branch Rs. 50,400. It may be assumed that closing stocks are correct.

Prepare the (i) Branch Stock, (ii) Goods Sent to Branch, and (iii) Branch Adjustment Accounts in the books of Head Office.

Illustration 5:

Sankha Trader Ltd. sends goods to its Gauhati Branch at cost plus 25%. From the following particulars you are required to show the necessary ledger accounts in the Head Office books:

Illustration 6:

Columnar Branch Stock Account (where there are two branches):

Pure Silk Company of Mursidabad has two Branches, one at Kolkata and the other at Delhi. Goods are invoice by the Murshidabad Head Office to its branches at cost plus 50% on Cost Both Cash and Credit Sales are made by the Branches and all cash collected by the Branches is sent to the Head Office and the Branch expenses are met by the Head Office.

The following particulars are supplied by the Branches for the year ended 31st March 2011:

Note:

When Branch Stock Account is prepared under Double Column, there is no necessity of preparing Branch Adjustment Account as Gross Profit can easily be ascertained from Branch Stock Account under Cost Price Column. Students are advised to complete the Invoice Price column at first.

Illustration 7:

Janata Traders, at Salt Lake, has a number of branch shops at different places of Kolkata All accounts are maintained by H.O. Goods are invoiced to branches at cost plus the expected mark up to 33⅓% and the accounting system is designed in such a manner which gives the H.O. as much control as possible over the branch stocks.

At Park Circus Branch at 1st Jan. 2009, goods costing Rs. 4,800 were in stock, apart of those goods costing Rs. 600 had been reduced in selling price to Rs. 675 and the balance of Debtors at the same time was Rs. 2,500.

The following particulars relating to Park Circus Branch at 31st Dec. 2009 were:

Illustration 8:

D Ltd with their Head Office at Delhi, invoiced goods to its Branch at Ghaziabad at 20% less than the list price which is cost plus 100% with instruction that cash sales were to be made at invoice price and credit sales at catalogue price (i.e., list price).

From the following particulars available from the Branch, prepare Branch Stock Account, Branch Adjustment Account, Branch Profit and Loss Account and Branch Debtors Account for the year ending 31st Dec. 2008:

Illustration 9:

Multi-chained Stores Ltd., Delhi, has its branches at Luck-now and Chennai. It charges goods to its Branches at cost plus 25%.

Following information is available of the transactions of the Luck-now Branch for the year ended on 31st March 2012:

Goods worth Rs. 15,000 (included above) sent by Luck-now Branch to Chennai Branch was in- transit on 31.3.2012.

Show the following accounts in the books of Multi-chained Stores Ltd.:

(a) Luck-now Branch Stock Account;

(b) Luck-now Branch Debtors Account;

(c) Luck-now Branch Adjustment Account;

(d) Luck-now Branch Profit and Loss Account and;

(e) Stock Reserve Account;

(f) Stock Lost by Fire Account; and

(g) Petty Cash Account.

What is Single Entry System ? - Pros and Cons

What is Single Entry System ?

Single entry accounting systems record only one side of every transaction. This happens because they use one entry to record every transaction. Therefore single entry system does not use nominal and real accounts. The emphasis is on cash and accounts receivable.

Single entry accounting system can be described as a system that businesses use to get by rather than something that companies may find desirable.

Small Firms

Single entry system is used by small firms that have just started business. Such firms do not have the resources that are required to put up a full-fledged accounting system in place. Hence they begin with a single entry accounting system. However as and when their business grows most firms are compelled to adopt the double entry system. This is because the single entry system is highly inefficient and can be used only by sole proprietors when the scale of business is very small and the transactions to be undertaken are not very complicated.

Incomplete Records

The biggest problem with single entry bookkeeping system is that of incomplete records. Single entry system records only transactions that the firm is undertaking with external parties. There are numerous transactions within the firm that are of vital importance and need a place in the financial statements. However, the single entry system ignores these needs and gives incomplete information to the management.

No Reconciliation

Single entry accounting system does not have provisions for reconciliation of accounts. This means that the system does not have inbuilt error detection. Therefore, if a clerk is doing the task of making entries in the book, the system may be prone to clerical errors. This could lead to management having insufficient information or no information when they have to make decisions.

Possibility of Fraud

Single entry accounting system is highly prone to frauds and embezzlement. There is only one book of account rather than an elaborate accounting system. Hence, the internal checks are few. In fact they are non-existent. The person making the accounts could single handedly manipulate the books of accounts and misappropriate the resources of the firm.

To counter this problem, Luca Pacioli and other merchants of Venice created the double entry accounting system. This system proved to be very effective and useful and soon became the gold standard for the industry.

Key Differences Between Statement of Affairs and Balance Sheet

1.      The basis of preparation of the Statement of Affairs is a partly single entry and partly double entry system, whereas the basis of preparation of Balance Sheet is a double entry system.

2.     In the balance sheet, capital is derived from the ledger accounts. On the contrary, in the case of the statement of affairs, capital in merely a balancing figure.

3.     A Balance Sheet is a very important part of the financial statements, but the Statement of Affairs is not a part of the financial statement.

4.     The Balance Sheet is accurate as it is prepared after a complete procedure is followed, but the accuracy of the Statement of Affairs is very less, as it is ready from incomplete records.

5.     In the Balance sheet, there are no estimated figures, however, due to insufficient records, hypothetical figures are taken.

6.     Statement of Affairs is prepared on either opening or closing date, whereas Balance Sheet is prepared for a specific date.

7.     There is no specific format for the Statement of Affairs, whereas Balance Sheet has a particular format (Revised Schedule VI), on the basis of which it is prepared.

RECIPROCAL/ALGEBRIC METHOD OF COST ALLOCATION – SERVICE DEPARTMENT COSTING:

DEFINITION:

Reciprocal method is a method of allocating service department costs to other departments that gives full recognition to interdepartmental services.

EXPLANATION:

The reciprocal method gives full recognition to interdepartmental services. Under the step method, only partial recognition of interdepartmental services is possible. The step method always allocates costs forward never backward. The reciprocal method, by contrast, allocates service department costs in both directions. The reciprocal allocation requires the use of simultaneous equations. This method is also known as algebraic method and simultaneous equations method.

Under this method the true cost of the service departments are computed first with the help of simultaneous equations and these are then distributed to producing departments on the basis of given percentage or ratio. Remember that true cost of the service department means the cost of the service department which includes original cost of the department plus the share of the other service department. The main advantage of this method is to have an accurate distribution in a single step in the distribution summary.

EXAMPLE:

A company has two service and two producing departments. The two service departments serve not only to producing departments but also to each other. The departmental estimates for the next year are as follows.

Producing departments:A B Service departments:X Y			50,000 40,000 10,000 8,800
The service departments costs are to be distributed as under:Cost of X : 50% to A, 40% to B, and 10% to Y Cost of Y : 40% to A, 40% to B, and 20% to X
Required: Transfer the service departments costs to each other and to producing departments.
Solution: Now we solve the given illustration first using the simultaneous equation method as follows:Original costs of service departments: X = Rs.10,000 Y = Rs. 8,800 After getting the share from distribution of service departments: X = Rs. 10,000 + 20% Y Y = Rs. 8,800 + 10% X By putting the value of Y in equation (1) X = Rs. 10,000 + 20%(Rs.8,800 + 10%X) X = Rs. 10,000 + 1760 + 0.2X X – 0.02X = Rs. 10,000 + Rs.1,760 0.98X = Rs. 11,760 X = 11760 / 0.98 = Rs. 12,000 By putting the value of X in equation (2) Y = Rs. 8,800 + 10%(Rs. 12000) Y = Rs. 8,800 + Rs. Rs. 1,200 = Rs. 10,000
Distribution Summary
Department	Producing		Service
Original costs Distribution of service department costs: X Y Total departmental overheads	ARs 50,000 6,000 4,000 ——- 60,000 =====	BRs 40,000 4,800 4,000 —— 48,800 =====	XRs 10,000 (12,000) 2,000 ——- Nil =====	YRs 8,800 1,200 (10,000) ——- Nil =====

USE OF RECIPROCAL METHOD:

This method is rarely used in practice for two reasons. First, the computations are relatively complex. Although the complexity issue could be overcome by use of computers, there is no evidence that computers have made the reciprocal method more popular. Second, the step method usually provides results that are a reasonable approximation of the results that the reciprocal method would provide. Thus, companies have little motivation to use the more complex reciprocal method.