Introduction to the context of accounting
Introduction to the context of accounting

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Introduction to the context of accounting

4 Data v. information

4.1 What's the difference?

The distinction between data and information is very important in accounting. New accounting students often ask, ‘what is data?’ ‘How does it differ from information?’ ‘Are they the same thing?’

Activity 7

What answers do you have to these three questions?

  1. What is data?

  2. How does it differ from information?

  3. Are they the same thing?

Answer

Data is the accountant’s raw material that is converted into information. Data means nothing until it is processed. What good is it to know that a book cost a bookshop £10? That only becomes information when it is combined with something else that enables you to assess it within a relevant context, such as how much the book would have cost had the bookshop bought it from a different supplier. Information is the accountant’s product.

Activity 8

What other data do you think could be used in order to convert the data about the cost of the book into information?

Answer

You may have suggested any of the following:

  • the selling price of the book

  • the amount the bookshop could have purchased the book for elsewhere

  • the time it took to receive the book from the publisher after the bookshop ordered it

  • the condition of the book when it arrived in the bookshop.

These are all good answers, and there are probably many others. In each case, they provide the means of assessing something:

  • what profit will be made if the book is sold

  • whether the bookshop paid a ‘good’ price for the book

  • how long in advance the bookshop should order the book if it wants it to be available for customers on a particular date

  • whether the supplier packages books appropriately.

By assessing it, a decision can be made. The data has been converted into information. Information is data processed for a purpose. In each and every case, once you have information, you can take a decision. You can’t take meaningful decisions with data. First, you must convert the data into information, you must have a purpose in using the information, and the decision maker must exercise judgement in how to use the information in taking a decision. This can be expressed as:

Decision = Purpose + Information + Judgement

Accountants specialise in converting data into information. In other words, they specialise in taking data and making it useful for decision making. Much of the data accountants process is financial – pounds and pence – and some is non-financial but quantitative – e.g. the number of pairs of shoes available for sale in a shoe shop. Traditionally accountants do not deal with data that cannot be expressed in numbers.

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