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Accounting Information Systems
Thinking, Development, and Evaluation

v1.0 Robyn L. Raschke and John A. Schatzel
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1.2 The Difference Between Data and Information

Learning Objectives

At the end of this section, students should be able to:

  1. Describe the difference between data and information.

  2. Explain the different data types and how they are categorized from an organizational perspective.

  3. Explain what makes information useful.

  4. Describe who needs and uses accounting information.

As used in this chapter, the term “accounting information” means monetary values and ratios that are useful for operations, decision-making, and filing necessary reports. This is in contrast to , which represent raw unorganized facts that need to be processed. For example, the following list is considered data:

  1. 1023

  2. January 18

  3. Strickland’s Fruit and Vegetables

  4. 100 pounds

  5. $80.97

As seen in this list, we have data, but they are not organized in a meaningful way. Data do not become information until they are organized to provide meaning. In the previous example, if we knew that the data were in the context of a vendor invoice, such as that in Figure 1.2, from Strickland’s Fruit and Vegetables for 100 pounds of tomatoes for an invoice total of $80.97, then this is meaningful information for Joe’s Ristoranté.

Figure 1.2 Example of Information

A sample sales invoice.

Long Description

                     Sales Invoice

 1023
Strickland's Fruit & Vegetables
88 Happy Valley Road
Watsonville, CA 95076
Order Date: 1/18/2021
Bill: Joe's Ristoranté Deliver To: Joe's Ristoranté
38 Harbor Way 38 Harbor Way
Santa Cruz, CA 95062 Santa Cruz, CA 95062
Qty Description Cost Subtotal
100 lbs Tomatoes Delivery 0.69 69.00
11.97
Total 80.97

Classifying Organizational Data by Source and Type

Data can be internal or external to the organization. An example of data internal to the organization is employee data needed for payroll, such as their wage rates, exemptions, etc. An example of data external to the organization would be the payroll tax percentages (federal, state, and local) needed to withhold taxes from employees’ paychecks.

  1. What data from Joe’s Ristoranté are internal?

    1. Data from sales transactions and vendor purchases found in the accounting system would be considered internal to Joe’s Ristoranté.

  2. What data for Joe’s Ristoranté are external?

    1. Tax rates for payroll, licensing fees to run a business, and tariffs for imported goods, such as cheese from Italy, would be external.

In addition, data are also classified as quantitative or qualitative. It’s easy for accountants to understand because it is a numerical value, such as the amount of sales revenues and the value of inventory. refers to data that have non-numerical value and are also relevant to organizations. To use Joe’s Ristoranté as an example, qualitative data found on social media about customers’ experiences at the restaurant or a menu item customers liked or disliked are meaningful to the organization because customer comments are considered qualitative data. 

  1. How would customer satisfaction be considered quantitative data?

    1. If a customer is asked, “Please rate your experience at Joe’s Ristoranté on a scale from 1–10, with 1 being ‘not satisfied at all’ and 10 being ‘very satisfied,’” then the customer response value is numerical.

  2. How would customer satisfaction be considered qualitative?

    1. If a customer asked, “Please tell us how you liked your experience at Joe’s Ristoranté today” and space is provided so that the customer can write down a response, then the response is qualitative.

What Makes Information Useful?

For information to be useful, it must have the following characteristics: be (reduces uncertainty), (free of error or bias), (in time to affect decisions), (includes all relevant data), and (intelligible to the user).

It is important to note that these characteristics are not additive, i.e., you can’t keep increasing one without necessarily reducing the others. For example, trying to make an accounting report timelier can reduce its reliability and completeness. Let’s look at the value of information using the transaction from Figure 1.2, where Strickland’s Fruit and Vegetables (a.k.a., Strickland’s) who is selling tomatoes to Joe’s Ristoranté (a.k.a., Joe’s). For Strickland’s to even take the order from Joe’s, the customer’s credit is relevant because it helps reduce uncertainty that Strickland’s will receive payment from Joe’s. If Strickland’s credit manager makes the decision to approve Joe’s as a customer, it is considered reliable. We will learn more about the separation of duties in Chapter 9 “Internal Control Environment”; however, it is fairly clear to see that the sales manager from Strickland’s would not be as reliable as the credit manager in approving Joe’s as a customer. Strickland’s current information on Joe’s payment history with other creditors from a current third-party credit report also makes the information timely. The order is considered complete when Strickland’s has all relevant information on the invoice, such as where to deliver the tomatoes and where to send Joe’s bill. Finally, if Joe’s order is clear about what they want (e.g., 100 lbs. of tomatoes), then it is understandable.

The trade-off between the benefit produced (usually in the form of an improved decision, which may result in increased revenues, cost savings, or both) and the cost of producing it (both quantitative and qualitative) equals value: = Benefits–Costs.

This equation is often used as the basis for many systems-related decisions.

  1. Should we install point-of-sale scanners and a realtime inventory system with programmed reorder points for $10 million?

    1. Yes, if it results in a reduction in purchasing costs and an increase in customer satisfaction and related revenue of more than $10 million.

  2. What if you are a legislator who voted for the Sarbanes-Oxley Act of 2002 and learned afterward that it cost $30 billion to implement instead of the $1 billion originally estimated. Would you vote to amend or repeal the regulation?

    1. Quite possibly, unless there was evidence that the benefits exceeded the $30 billion. In fact, Congress did pass Section 404(b) which amends the Act and allows public companies with less than $75 million of market cap to be exempted from the internal control auditing requirement.

The concept of value is very important and should not be confused with the notion of usefulness as discussed previously. Usefulness just relates to the benefit side of the equation.

Who Needs and Uses Accounting Information?

An for an organization would be any party (internal or external) who needs to interact with the organization from an information perspective and vice versa. For example, customers and vendors are considered trading partners with the organization. Government entities such as state and federal health, employee, and tax regulations requiring compliance are also in the ecosystem. Specifically, users may include the following:

  1. Managers—to make operating decisions and strategic plans

  2. Investors—to facilitate buy, hold, and sell decisions

  3. Creditors—to determine if a loan should be made or not and the related level of credit risk

  4. Auditors—to determine if a company is auditable or not and the likelihood that its financial statements are misstated

  5. Employees—to assess their employer’s financial stability

It is important to note that while users employ the outputs from an accounting system, they are not considered to be a part of the accounting system per se. From Joe’s Ristoranté perspective, the information ecosystem would include, but is not limited to, the state health regulations for restaurants that require compliance as well as taxing authorities requiring compliance for the restaurant. In addition, if Joe’s Ristoranté imports cheese from Italy and has to pay import tariffs, this is also part of the information ecosystem. Understanding an organization’s information ecosystem is an important concept of governance, compliance, and risk, which will be further explored in Part 3 of this book.

From Joe’s Ristoranté perspective, the information ecosystem would include, but is not limited to, the state health regulations for restaurants that require compliance as well as taxing authorities requiring compliance for the restaurant. In addition, if Joe’s Ristoranté imports cheese from Italy and has to pay import tariffs, this is also part of the information ecosystem. Understanding an organization’s information ecosystem is an important concept of governance, compliance, and risk which will be further explored in Part P3 “The Control Perspective” of this book.