From Confusion to Creativity, Becoming Wise
There's a well-known information model called the "DIKW Pyramid". If you're unfamiliar with the model, "DIKW" stands for: Data, Information, Knowledge, and Wisdom (note: some variations of the model include Understanding between Knowledge and Wisdom, DIKUW). The model is hierarchical in nature. In other words, each subsequent level is dependent upon its predecessor.
I first encountered the model in a CIS (Computer Information Systems) class I took in business school. The model was essential to the curriculum, as it formed the base knowledge necessary for the semester long study of information, and how it relates to decision making. Let's take a moment to briefly define the four major components.
Data: In this context, data is considered to be the dispersion of various signs, symbols, values, or characters. Data that has yet to be organized into the Information state has little to no value.
Here's an example of data: 4.P7$R4 T E5E9NX
As you can see, not much is gained by looking at the random assortment of letters, numbers, and characters.
Information: Think of information as raw data that's been organized into something useful. Someone, or some machine, has gone through the effort of gathering the randomly dispersed data points, and organizing them in such a way that they provide meaning.
Here's an example of the above data properly sorted: RENT EXP $947.45
Knowledge: In the Pyramid, Knowledge represents that which is gained by reading Information. For example, based on the above Information, we now know that our company has to pay $947.45 in rent.
Wisdom: At the apex of the Pyramid, we find Wisdom. Wisdom is the ability to take the Knowledge that is gained by reading the Information formed from the Data, and apply it to the appropriate ends. It sits at the top of the Pyramid, not only because it's the last step in the process, but also, the most difficult.
So how does this relate to accounting and bookkeeping? As a business owner or manager, it falls to you to make the right decisions. When bad data is disorganized into misinformation, very little knowledge can be gained. A lack of knowledge will prevent you from making wise decisions. However, when good data is properly organized into good information, then a wealth of knowledge is available. Couple that with a solid understanding of your company and your market, and you'll be capable of making wise decisions. If your accounting system is little more than a "checkbook" that your CPA uses to pay your taxes once a year, I submit to you that you've barely scratched the surface of its capabilities!