Transcript hall, accounting information systems

Chapter 10
The REA Approach to
Business Process Modeling
Accounting Information Systems, 7e
James A. Hall
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Objectives for Chapter 10
 Recognize the economic foundations of the
resources, events, and agents (REA) model.
 Understand the key differences between
traditional entity relationship modeling and REA
modeling.
 Understand the structure of an REA diagram.
 Be able to create an REA diagram by applying
the view modeling steps to a business case.
 Be able to create an entity-wide REA diagram by
applying the view integration steps to a business
case.
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Traditional Approaches:
User-View Orientation
 When data-modeling and IS design is
too oriented toward the user’s views,
problems arise:
 multiple information systems
 duplication of data
 restricted user-view leads to poor
decision-making
 inability to support change
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Resources, Events, and Agents Model
 REA is an approach to database design
meant to overcome problems with traditional
approaches:




formalized data modeling and design of IS
use of centralized database
use of relational database structure
collects detailed financial and non-financial
data
 supports accounting and non-accounting
analysis
 supports multiple user views
 supports enterprise-wide planning
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Resources, Events, and Agents Model
 REA models consists of three
entity types and the associations
linking them.
 Resources
 Events
 Agents
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Resources in the REA Model
 Resources – the ‘assets’ of the company
 things of economic value
 objects of economic exchanges able to generate
revenue
 objects that are scarce and under the control of
the organization
 can be tangible or intangible
 Does not include some traditional accounting
assets:
 artifacts that can be generated from other primary
data
 for example, accounts receivables
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Events in the REA Model
 Events are phenomena that effect
changes in resources.
 a source of detailed data in the REA
approach to databases
 Events fall into two groups:
 Economic – increases or decreases
resources
 Support – control, planning, and other
management activities; but do not directly
affect resources
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Agents in the REA Model
 Agents can be individuals or departments.
 Participate in events
 Affect resources
 Have discretionary power to use or dispose of
resources
 Can be inside or outside the organization





Clerks
Production workers
Customers
Suppliers, vendors
Departments, teams
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Basic REA Model
Participates
External Economic
Agent
Economic
Resource
Stock Flow
Economic Event
Duality
Participates
Internal Economic
Agent
Figure 10-1
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Resources, Events, and Agents
Model
 Another key feature of the REA
model is economic duality.
 Events occur in pairs
 Represent the give event and
receive event of an economic
exchange
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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REA Model showing Duality of
a Give and Receive Exchange
Participates
Resource A
Out Flow
External Agent
Give Economic
Event
Participates
Internal Agent
Give Activity
Duality
Receive Activity
Participates
Resource B
Inflow
Internal Agent
Receive Economic
Event
Participates
External Agent
Figure 10-2
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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ER Diagrams (ERD’s) versus
REA Diagrams (READ’s)
 Classes of entities
 ERD’s – one class
 READ’s – three classes (resources, events, and agents)
 Arrangement of entities
 ERD’s – determined by cardinality and readability
 READ’s – organized into constellations by class
 Sequencing of events
 ERD’s – static
 READ’s – chronological sequence of business processes
 Naming conventions
 ERD’s – all nouns
 READ’s – nouns (R’s and A’s) and verbs (E’s)
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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View Modeling: Creating an
Individual REA Diagram
 View modeling is a multistep process for
creating an individual REA model.
 The result is a single view of the entire database.
 The four steps involved are:
1.
2.
3.
4.
Identify the event entities to be modeled.
Identify the resource entities changed by events.
Identify the agent entities participating in events.
Determine associations and cardinalities between
entities.
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Step 1: Identify the Event Entities
 Identify the events that are to be included
in the model.
 Include at least two economic events (duality)
 May include support events
 Arrange events in chronological sequence
 Focus on value chain events.
 Do not include invalid events such as:
 bookkeeping tasks
 accounting artifacts, e.g., accounts receivable
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Arrangement of Events Entities in Order of
Occurrence
Events
Order of Events
Verify Availability
Take Order
Ship Product
Figure 10-5
Receive Cash
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Step 2. Identify the Resource
Entities
 Identify the resources impacted by
events identified in step 1.
 Each event must be linked to at least
one resource.
 Economic events directly affect resources.
 Support events indirectly affect them.
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Step 3. Identify the Agent Entities
 Each economic event entity in an REA
diagram is associated with at least two
agent entities.
 One internal agent
 One external agent
 It is possible to have only an internal
agent when no exchange occurs, as
with certain ‘internal’ manufacturing
processes.
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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REA Model Showing Events and Related
Resources and Agents
Figure 10-6
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Step 4. Determine Associations and
Cardinalities between Entities
 Association – reflects the nature of the relationship
between two entities
 Represented by the labeled line connecting the entities
 Cardinality – the degree of association between the
entities
 Describes the number of possible occurrences in one entity
that are associated with a single occurrence in a related
entity
 Cardinality reflects the business rules that are in play for
a particular organization.
 Sometimes the rules are obvious and are the same for all
organizations.
 Sometimes the rules differ, e.g., whether inventory items are
tracked individually or as quantity on hand.
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Associations and Cardinality in REA
Diagram
Figure 10-8
Hall, Accounting Information Systems, 7e
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Many-to-Many Associations
 Many-to-many (M:M) associations
cannot be directly implemented into
relational databases.
 They require the creation of a new
linking table.
 This process splits the M:M association
into two 1:M associations.
 The linking table requires a ‘composite
primary key’.
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Link Tables in an REA Diagram
Figure 10-9
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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View Integration: Creating an
Enterprise-Wide REA Model
 View integration – combining several
individual REA diagrams into a single
enterprise-wide model
 The three steps involved in view integration
are:
1. Consolidate the individual models.
2. Define primary keys, foreign keys, and
attributes.
3. Construct physical database and produce user
views.
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Step 1. Consolidate the Individual
Models
 Merging multiple REA models requires
first a thorough understanding of the
business processes and entities involved
in the models.
 Individual models are consolidated or
linked together based on shared entities.
 For example, procurement (expenditures) and sales
(revenue) both use inventory and cash resource
entities.
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Integrated REA Diagram
Figure 10-12
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Step 2. Define Primary Keys,
Foreign Keys, and Attributes
 Implementation into a working relational
database requires primary keys, foreign keys
and attributes in tables.
 Primary key – uniquely identifies an instance of an
entity (i.e., each row in the table)
 Foreign key – the primary key embedded in the
related table so that the two tables can be linked
 Attribute – a characteristic of the entity to be
recorded in the table
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Rules for Foreign Keys
 Primary key  Foreign key: Relations are formed
by an attribute that is common to both tables in the
relation.
 Assignment of foreign keys:
 if 1 to 1 (1:1) association, either of the table’s
primary key may be the foreign key
 if 1 to many (1:m) association, the primary key
on one of the sides is embedded as the foreign
key on the other side
 if many to many (m:m) association, create a
separate linking table with a composite primary
key
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Attributes
Using the customer as an example, these data include:
Financial
Customer name
Customer address
Customer telephone
number
Amount owed by
customer
Value of total sales to
date
Terms of trade offered
Nonfinancial
Customer credit rating
Damaged goods
record
On-time payment
record
Customer volume
record
EDI access
Internet access
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Step 3. Construct Physical
Database and Produce User Views
 The database designer is now ready to create the
physical relational tables using software.
 Once the tables have been constructed, some of them
must be populated with data.
 Resource and Agent tables
 Event tables must wait for business transactions to
occur before data can be entered.
 The resulting database should support the information
needs of all users.
 SQL is used to generate reports, computer screens, and
documents for users.
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User-Views
User-View #1
Past Due Accounts
Name Amount
James $500.00
Henry $100.00
…
…
User-View #2
Sales Report
REA Database
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Value Chain Analysis
 Competitive advantages from the REA
approach can be see via value chain
analysis.
 Value chain analysis distinguishes between
primary activities (create value) and support
activities (assist performing primary activities).
 REA provides a model for identifying and
differentiating between these activities.
 Prioritizing Strategy: Focus on primary activities;
eliminate or outsource support activities.
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Competitive Advantages of the
REA Model
 Using REA can lead to more efficient
operations.
 Helps managers identify non-value added
activities that can be eliminated
• Increasing productivity via elimination of nonvalue added activities generates excess capacity
 Storing both financial and nonfinancial data in
the same central database reduces multiple
data collection, data storage, and maintenance.
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Competitive Advantages of the
REA Model
 Using REA can lead to more efficient
operations.
 Detailed financial and nonfinancial business
data supports a wider range of management
decisions
• supporting multiple user views (e.g., different
perspectives on a problem)
 Provides managers with more relevant, timely,
and accurate information.
• leading to better customer service, higher-quality
products, and flexible production processes
Hall, Accounting Information Systems, 7e
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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