The REA (Resources, Events, Agents) model is a framework for understanding and representing business

transactions. It was proposed in the 1980s by accountants W.J. Granted and J.B. Rosenberg. The model
is based on the idea that every transaction has two aspects: a financial aspect (reflected in financial
statements) and an economic aspect (the underlying reality). The REA model provides a way to
understand the relationships between these two aspects and to design accounting information systems
(AIS) that capture the necessary data for decision-making. The model is based on three basic concepts:
resources (owned or controlled things, such as cash or equipment), events (economic activities causing a
change in resources, such as sales or loans), and agents (entities involved in events, such as people or
organizations). The REA model represents these relationships in a diagram. It has been widely adopted
in the accounting profession and has significantly impacted AIS.

ADVANTAGES

1. Integration of financial and non-financial information: The REA model combines financial and
non-financial data, making both types of information easily accessible to management. This
integration provides a more complete picture of a company's performance and allows for better
decision-making.

For example in REA Model integrating financial and non-financial information can be used as a
cloud-based forecasting and planning solution that combines financial data such as revenue,
expenses, and profits, with non-financial data such as customer satisfaction, website traffic, and
employee turnover. By integrating these two types of data, the finance team can gain a more
comprehensive view of the organization's performance and make more informed decisions.

2. Improved performance tracking and analysis: By representing the relationships between

resources, events, and agents, the REA model allows for more effective tracking and analysis of
a company's performance. This information can be used to identify trends, make predictions,
and improve overall performance.

Let's say a manufacturing company uses the REA model to track its inventory levels. By
representing the relationships between resources (inventory), events (transactions related to
inventory, such as purchases and sales), and agents (suppliers, customers), the company can
more effectively track its inventory levels and identify trends. For example, the company could
use this information to forecast future inventory needs, optimize its supply chain, and reduce
waste.

( by representing the relationship between resources, events and agents REA model allows for
more effective tracking and analysis ng performance ng isang company. This information can be
used to identify trends, make prediction and improve overall performance)

( For example ang isang manufacturing company, gumagamit siya ng REA model para ma track
ang inventory level niya. Sa pamapagitan ng pag represent ng relationship ng RESOURCES
(INVENTORY), the EVENTS (BUYING and SELLING), and the AGENTS (SUPPLIER and CUSTOMERS),
mas matatrack ng isang company ang kanyang inventory levels and puwede niyang ma identify
 ang trends through those transaction. Isang example pa ginamit ni company ang information
nayun para ma predict niya ang mg future inventory needs, puwede niya ma optimize yung
supply chain and puwede niya mabawasan yung mmga waste sa production or sa time because
of the process.)

3. Simplified data structure: The REA model simplifies the data structure, reducing the risk of data
duplication and data redundancy. This simplification also lowers the need for ongoing
maintenance, making the system easier to manage.

Try to consider a retail business that uses the REA model to manage its financial data. By
simplifying the data structure, the REA model reduces the risk of data duplication and data
redundancy. This means that the finance team spends less time on data entry and maintenance,
and more time on analysis. Also the simplified data structure makes it easier for the finance
team to understand the relationships between financial data, making it easier to identify errors
and inconsistencies.

4. Increased capacity and efficiency: The REA model's increased capacity allows it to process more
data more quickly, improving its overall efficiency. This increased capacity also allows for more
complex and detailed analysis, providing management with a more complete understanding of
the company's performance.

Another example is a healthcare organization that uses the REA model to manage its patient
data. The increased capacity of the REA model allows it to process more data more quickly,
improving its overall efficiency. This means that the healthcare organization can analyze patient
data in real-time, allowing for more timely and informed decision-making. Additionally, the
increased capacity allows for more complex and detailed analysis, providing the healthcare
organization with a more complete understanding of patient trends and needs.

5. Support enterprise-wide planning: REA model has the ability to support enterprise-wide
planning. By including both operational and accounting transactions, the REA model expands the
scope and usefulness of the accounting information system. This allows for a more
comprehensive view of the organization's activities and better decision-making.

For example, consider a manufacturing company that produces and sells various products. By
using the REA model, the company can track both the financial transactions related to the sale
of the products, as well as the operational transactions related to the production process. This
includes tracking raw materials, labor costs, and production schedules. By integrating this
information, the company can better plan its production activities and make informed decisions
about its resource allocation, ultimately improving its overall performance. In this way, the REA
model goes beyond traditional accounting systems by providing a more complete picture of an
organization's activities, including both financial and operational information. This allows for
better decision-making and improved performance, as well as more comprehensive
understanding of the organization's activities.
DISADVANTAGES

1. Static model: The REA model is a static model, which means it does not account for changes
over time. This means that the model does not consider how the economy evolves over time. It
only considers the current state of the economy. This can be a problem because it does not
capture the dynamic nature of economic systems. For example, if a new technology is
introduced, the model would not account for the impact this has on the economy.

2. Deterministic model: The REA model is a simplified way to analyze economic systems. It
assumes that everything in the economy is known with certainty, and that all markets are in
equilibrium. This means that the model does not consider the possibility of errors, uncertainties,
or changes in the economy.

For example, let's say you're trying to predict the price of a product. In a deterministic model
like REA, you would know the exact price of the product at all times. However, in reality, the
price of a product can change due to various factors, such as supply and demand, or the
introduction of new technologies. These changes are not accounted for in a deterministic model
like REA.

3. General equilibrium model: The REA model assumes that all markets are always in balance,
meaning that the amount of goods and services being supplied is always equal to the amount
being demanded. This is called a "general equilibrium" model.

However, this is rarely the case in real life. For example, during a recession, people may want to
buy more goods and services than what is available, leading to a shortage. In these cases, the
REA model does not provide accurate results, as it does not account for market imbalances. REA
model assumes that everything is always in balance, but in reality, things can get out of balance,
leading to shortages or surpluses. This can make the model's predictions inaccurate.

4. Complete markets model: The REA model assumes that all markets are ideal, with no costs or
obstacles to buying and selling goods and services, and with all information available to
everyone. However, in real-world markets there can be significant transaction costs and
information asymmetry between buyers and sellers. For example, there may be fees associated
with buying or selling goods and services, and buyers may not have access to the same
information as sellers.

(si REA model inaasume niya na ang isang market is ideal or complete kasi akala niya na walang
mga obstacle sa buying and selling ng mga goods and services, and akala din ni REA model na
ang information is available sa lahat. PERO sa totoong buhay hindi naman talaga ganun
nakakaranas tayo ng struggle sa buying and selling, and hindi lahat is merong information ng
isang bagay nay un, so in reality ang market is hindi naman talaga perfect.)
 (For example si small business gusto niya na magdagdag ng bagong product line or even new
product and gumamit siya ng REA model para ma manage yung financial and operational
transaction niya and dahil dun iniissip ni business na ideal na ibenta yun sa market pero dahil
REA model ang ginamit walang complete na information ang public or buyers, hindi nila alam
yung about sa mga ginastos ni business pati yung mismong quality and kung paano binuo kaya
mahihirapan sila mag decide kung bibili ba sila or hindi and minsan meron ding mga tao na
walang access sa information saka sa market kaya di sila makabili. Assumption lang ni REA model
na Complete yung Market Model)

5. Walrasian model: The REA model is a type of Walrasian model, which means that it assumes
that all buyers and sellers in the economy have to accept the market price for goods and
services, and cannot influence the price themselves. This is also known as "price taking"
behavior.

The REA model further assumes that all agents can adjust their prices instantly to reflect
changes in the economy. However, in reality, prices often do not change instantly, and there can
be delays or lags in the price adjustment process.

To account for this limitation, other models have been developed, such as the "stickiness of
prices" model, which considers the fact that prices can take time to adjust. These models
provide a more realistic analysis of economic systems by considering the dynamics of price
adjustments.