What's an Information System?
An information system is the people and technologies in an organization that collects, stores and processes data into information (like financial statements) that support decision-making. Accounting is typically thought of as the primary information system in an organization.
DAO Business Processes
DAOs achieve specific organizational goals through business processes and for each business process, they need certain pieces of information in order to make key decisions.
Vendor management is an example of a business process and in this process, one key decision to be made is when to pay vendors. An accounting system can support this decision with the following informational reports:
- Spending proposals or vendor invoices
- Accounts payable (A/P) aging report
Vendor invoices have details such as due dates and the amounts owed to the vendors for their goods or services. The information from all vendor invoices are summarized on the A/P aging report, which has a list of vendor names, the amounts owed to them and how long payments have been due.
DAO Transaction Cycles
Vendor management is just one of many business processes that DAOs engage in. All transactions that happen in business processes can be grouped into transaction cycles. The transactions within the vendor management process (like paying vendors) fall under the cycle category of expenditure.
Here are some other transaction cycle types:
All transactions that happen within these cycles contain data that feeds into a general ledger & reporting system, which produces information like financial statements for internal and external users.
DAOs may have different transaction cycles depending on their business model. For example, DAOs that hire employees instead of just contributors and contractors will have a human resource / payroll cycle.
In the past year, many DAO tools have emerged to handle the transactions in a variety of accounting transaction cycles. Below are some popular tools that are being used today.
Expenditure and HR/Payroll Cycles
These tools help with transactions relating to paying contributors or DAO employees.
The financing cycle includes transactions that relate to selling the DAO's digital assets in exchange for stable coins or cash. It also includes transactions from borrowed loans.
These tools are used by the treasury management function of a DAO (which is separate from the accounting function). The teams below have applications or professional services to manage a DAO's digital assets using a variety of DeFi strategies.
General Ledger & Reporting
G/L and reporting isn't a transaction cycle — ideally, transaction data from the other cycles end up here, where they're analyzed and processed into useful financial information.
Internal and External Stakeholders
DAOs need to interact with both internal and external parties. Internal parties could include contributors and subDAOs. External parties could include creditors, token purchasers, government agencies, and more. The diagram below shows the interactions between the DAO and internal and external stakeholders.
DAO Resource Planning Systems
In many organizations, accounting is the connective tissue for other business functions. These other functions could include governance, business intelligence, human resources, treasury management, and customer relations.
Traditional companies make use of Enterprise Resource Planning (ERP) systems — a tool that serves as the integrated management of an organization's main business processes. As DAO operations become more sophisticated, I'd imagine a similar tool emerging to manage all its interrelated business processes.