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.
1
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 2
©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.
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 3
©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.
Resources, Events, and Agents Model
▪ REA models consists of three
entity types and the associations
linking them.
▪ Resources
▪ Events
▪ Agents
Hall, Accounting Information Systems, 7e 4
©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.
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
Hall, Accounting Information Systems, 7e 5
©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.
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
Hall, Accounting Information Systems, 7e 6
©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.
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
Hall, Accounting Information Systems, 7e 7
©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.
Basic REA Model
Participate
s External Economic
Agent
Stock
Economic Economic Event
Flow
Resource
Dualit Internal Economic
y Participate Agent
s
Figure 10-1
Hall, Accounting Information Systems, 7e 8
©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.
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
Hall, Accounting Information Systems, 7e 9
©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.
REA Model showing Duality of
a Give and Receive Exchange
External Agent
Partici
pates
Out Give Economic
Resource A Event
Flow
Partici Internal Agent
Give Activity
pates
Du
alit
Receive Activity y
Internal Agent
Partici
pates
Infl Receive Economic
Resource B Event
ow
Partici External Agent
Figure 10-2 pates
Hall, Accounting Information Systems, 7e 10
©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.
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. Identify the event entities to be modeled.
2. Identify the resource entities changed by events.
3. Identify the agent entities participating in events.
4. Determine associations and cardinalities between
entities.
Hall, Accounting Information Systems, 7e 11
©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.
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.
Hall, Accounting Information Systems, 7e 12
©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.
Arrangement of Events Entities in Order of
Occurrence Events
Order of Events
Verify Availability
Take Order
Ship Product
Figure 10-5
Receive Cash
Hall, Accounting Information Systems, 7e 13
©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.
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 14
©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.
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.
Hall, Accounting Information Systems, 7e 15
©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.
REA Model Showing Events and Related
Resources and Agents
Figure 10-6
Hall, Accounting Information Systems, 7e 16
©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.
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.
Hall, Accounting Information Systems, 7e 17
©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.
Associations and Cardinality in REA
Diagram
Figure 10-8
Hall, Accounting Information Systems, 7e 18
©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.
End of Chapter
▪ Thank You
Hall, Accounting Information Systems, 7e 19
©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.