GIGO, an acronym for “garbage in, garbage out,” establishes how inaccurate input data will produce flawed and inaccurate output results.
Primary Implication
Your data inputs used in your reporting must be accurate if you are to make better decisions through your business reporting. If the data inputs are accurate, you’ll have accurate information to act on.
On the other hand, inaccurate data will result in misleading information. This is particularly true when you have data coming at you from every corner of the business. It’s tough to have confidence in your business reporting if you don’t have confidence in the data feeding into your reports.
Overview
Avoiding “Garbage In, Garbage Out” (GIGO) in Your Business
GIGO, or “garbage in, garbage out,” is a common saying in computer science. It means that if you put bad data into a system, you’ll get bad results out. This is also true for business decision-making.
How GIGO Affects Business Decisions
Imagine relying on your financial reports to make important decisions about your business, such as whether to invest in new equipment or hire more staff. If the underlying data in those reports is inaccurate, you could make costly mistakes.
Even if you record every transaction correctly, your financial reports can still be misleading if your chart of accounts (the list of accounts used to categorize transactions) is misaligned. This means that transactions might be categorized incorrectly, leading to inaccurate reports.
How to Avoid GIGO
Here are some tips to ensure you’re working with accurate financial data:
- Accurate transaction recording: Ensure every business transaction is recorded correctly with the right date, amount, and description.
- Proper account categorization: Make sure each transaction is categorized into the correct account in your chart of accounts.
- Regular bank reconciliations: Reconcile your bank statements with your financial records monthly to identify and correct any discrepancies.
Why is this Important?
Accurate financial data is essential for making sound business decisions. By avoiding GIGO, you can:
- Gain a clear understanding of your financial performance.
- Make informed decisions about pricing, expenses, and investments.
- Avoid costly mistakes that can impact your profitability.
In short, reliable business transaction data leads to better decisions and a healthier business.