Question

How do business events turn into data, then into information, and then into knowledge? Give an example starting with the business event of the purchase of a CD at Best Buy all the way to useful information for the CEO and other decision makers.

Answer 1

There are many events that happen in business. Some involves monetary transactions. All material or monetary transactions are recorded in order to recognise expenses and revenues of the organisation. These transactions are recorded in a proper format and financial statements are prepared that represents all the data and information clearly. For example: In a company , manager purchases CD at Best Buy for $50,000 , half amount is paid immediately and half on account (bills payable) after 3 months. In this case, there is transaction involving money and thus this has to be recorded in books of accounts by debiting purchases account and crediting cash and bills payable account. Suppose all such transactions are recorded and profit is calculated. Now, it is clearly visible in financial statements that profit has increased from previous year and this is just because of purchase from a particular shop/supplier. This information is useful for manager as he can compare profit along with costs and make a decision regarding purchases etc. CEO can use this information for controlling and taking steps necessary. Shareholders and investors can use this information in predicting future share prices and profitability of firm. Government and credit rating agencies will use the information in imposing or checking tax and giving rates for raising funds(loan) from the market. Thus recording financial transactions in a proper manner helps everyone related to firm in decision making.