Course: ISYS6186-Business Process Fundamental

Effective Period : February 2022

The REA Data Model and

Special Topics in REA Modeling

Session 3-4
 Acknowledgement

These slides have been adapted from:

Accounting Information Systems

15th (2021)
Marshall B. Romney, Paul J. Steinbart,
Scott L. Summers, David A. Wood.
Pearson Education Limited, England
ISBN: 978-1-2923-5337-1

Chapter 19-20-21
 Learning Outcome
Student will be able to :
• Describe the model of business process
• Construct an integrated business process
 Learning Objectives
After studying this chapter, student will be
able to :
• Discuss the steps for designing and implementing a
database system.
• Explain the nature and use of Entity-Relationship (E-R)
diagrams.
• Explain the content and purpose of the REA data model.
• Read an REA diagram and explain what it reveals about
the business activities and policies of the organization
being modeled.
 Database Design Process

data modeling
Defining a database so that it
faithfully represents all key
components of an
organization’s environment.
The objective is to explicitly
capture and store data about
every business activity the
organization wishes to plan,
control, or evaluate.
• Entity-relationship (E-R) diagrams
• REA data model

FIGURE 17-1
Data Modeling in
the Database Design Process
 Entity-Relationship Diagrams

• Entity-Relationship (E-R) diagrams are a

graphical way to diagram the relationships
between entities.
A graphical depiction of a database’s contents
showing the various entities being modeled and
the important relationships among them.
• An entity is anything that the organization wants
to collect and store information
• For AIS database design, the decision is
understanding what entities should be included.
• REA diagrams are E-R diagrams specifically
designed for AIS.
 Entity-Relationship Diagrams
FIGURE 17-2
E-R
Diagram
Variations
 The REA Data Model

REA data model - A data model used to design AIS databases.

It contains information about three fundamental types of
entities: resources, events, and agents.

• Resources
– Things that have economic value to the
organization (e.g., inventory, cash)
• Events
– Various business activities that management
wants to collect information on
• Agents
– People and organizations that participate in
events (both internal (e.g., employees) and
external (e.g., customers/vendors) to the
organization)
 Structuring Relationship:
The Basic REA Template

1. Each event is linked to at least Structuring Relationship:

one resource that is affects. The Basic REA Template
2. Each event is linked to at least
one other event.
3. Each event is linked to at least
two participating agents.
 Structuring Relationship:
The Basic REA Template

FIGURE 17-4
Standard REA
Template
 Structuring Relationship:
The Basic REA Template

FIGURE 17-5
An AIS Viewed as a Set of Give-to-Get Exchanges
 Developing an REA Diagram

• Identify relevant events

– Give-get exchange (economic duality)
• Identify resources and agents
– Resource reduced in give event
– Resource acquired in get event
• Determine cardinalities of relationships
– Nature of the relationship between the
two entities
 Developing an REA Diagram

For example, Chapter 12 explained that the revenue cycle typically consists of four
sequential activities:
1. Take customer orders
2. Fill customer orders
3. Bill customers
4. Collect payment
from customers

FIGURE 17-6
Partial REA Diagram
for Fred’s Train Shop
Revenue Cycle
 Developing an REA Diagram
Cardinality Notation Methods

Cardinalities
Describe the nature of a
database relationship indicating
the number of occurrences of
one entity that may be
associated with a single
occurrence of the other entity.
Three types of cardinalities are
one-to-one, one-to-many, and
many-to-many.
 Developing an REA Diagram
Cardinality Notation Methods
 Developing an REA Diagram
Cardinality Notation Methods
 Developing an REA Diagram
Three Types of Relationships
Three Types
Of Relationships:
1. A one-to-one (1:1)
relationship
2. A one-to-many (1:N)
relationship
3. A many-to-many (M:N)
relationship
Figure 17-7
Examples of Different
Types of Relationships
 Key Terms

• Data modeling • Minimum cardinality

• Entity-relationship (E-R) diagram • Maximum cardinality
• REA data model • One-to-One (1:1) relationship
• Resources • One-to-Many (1:N) relationship
• Events • Many-Many (M:N) relationship
• Agents
• Cardinalities
 Learning Objectives
After studying this chapter, student will be able
to :
• Integrate separate REA diagrams for individual business
cycles into a single, comprehensive, organization-wide REA
diagram.
• Build a set of tables to implement an REA model of an AIS
in a relational database.
• Use the REA data model to write queries to retrieve
information from an AIS relational database built according
to the REA data model.
 Integrating REA Diagrams
Across Cycles
Combining REA Diagrams
o m b in e d to form
g ra m s c a n be c
d iv i d u a l R EA dia by:
• In d i a g r a m
n in t e gr a ted REA it ie s (e.g.,
a source en t
e d u n d a n t r e
u re c y c l e and
r pendit
– Merging i r e d in e x
e n t o r y i s acq u
in v
e s a le s c y cle)
reduced in
th
s (e . g . , d isburse
e ve n t entitie
g r e d u n da n t
e n d it u re cycle
– Merg in in the ex p
t ap p e a r s
cash even ll c y c le)
a y ro
and the p
 Integrating REA Diagrams
Across Cycles
Integrated REA Diagram Rules
• Every event must be linked to at least one resource.
• Every event must be linked to two agents who participate in
that event.
• Every event that involves the disposition of a resource must be
linked to an event that involves the acquisition of a resource
(give-get exchange).
• Every resource must be linked to at least one event that
increments that resource and to at least one event that
decrements that resource.
• If event A can be linked to more than one other event, but
cannot be linked simultaneously to all of those other events,
then the REA diagram should show that event A is linked to a
minimum of 0 of each of the other events.
• If an event can be linked to any one of a set of agents, then the
ERA diagram should show that event is linked to a minimum of
0 of each of those agents.
 Fred’s Train Shop Revenue Cycle

Figure 18-1
Fred’s Train Shop
Revenue Cycle
Fred’s Train Shop Expenditure Cycle

Figure 18-2
Fred’s Train Shop
Expenditure Cycle
 Fred’s Train Shop Payroll Cycle

Figure 18-3
Fred’s Train Shop
Payroll Cycle
 Integrated REA Diagram for Fred’s Train Shop

Figure 18-4
Integrated REA
Diagram for
Fred’s Train Shop
 Implementing an REA Diagram
in a Relational Database
• Create tables for each distinct entity
and M:N relationship
• Assign attributes to each table
– Identify primary keys
– Concatenated keys for M:N
relationship table
• Use foreign keys to implement 1:1 and
1:N relationships
 Implementing an REA Diagram
in a Relational Database

Table 18-1
Table Names and
Attribute Placement
for Figure 18-4
 Using REA Diagrams
to Retrieve Information
from a Database
• Journals
– Information contained in event tables
• Ledgers
– Information contained in resource tables
(increment and decrements of events)
• Financial statements
– Information contained in resources and events
using a set of queries
• Management reports
– Financial and nonfinancial information
 Key Term
• Concatenated keys
 Learning Objectives
After studying this chapter, student will be
able to :
• Create REA data models for the revenue and expenditure
cycles of other types of organizations besides retail stores.
• Extend REA diagrams to include information about
employee roles, M:N agent-event relationships, locations,
and relationships between resources and agents.
• Understand and create an REA diagram for the production
cycle.
• Understand and create an REA diagram for the HR/payroll
cycle.
• Understand and create an REA diagram for the financing
cycle.
 REA Extensions

• Additional revenue events

– Call on customer
– Take customer order
– Fill customer order
• Additional expenditure events
– Request inventory
• Employee Roles
– Include as an attribute in the employee table
• Locations
– Modeled with resources (e.g., warehouse)
 Additional Revenue and Expenditure
Cycle Modeling Topics

Figure 19-1
Extended Partial
Revenue Cycle REA
Diagram
Additional Revenue and Expenditure
Cycle Modeling Topics
Additional Revenue and Expenditure
Cycle Modeling Topics
Figure 19-2
Extended REA
Diagram for
Expenditure Cycle
Additional Revenue and Expenditure
Cycle Modeling Topics
 REA Extensions:
Sales of Services

FIGURE 19-3
Partial Revenue Cycle
for Sale of Services
 REA Extensions:
Acquired Services

FIGURE 19-4
Partial Expenditure Cycle for Acquisition of Services
 REA Extensions:
Rental Transactions

FIGURE 19-5
Partial Revenue Cycle
for Rental Transactions
Preparation of session 5-6:
• Students learn the material “System
Documentation-System Flowchart” from
Binusmaya and from textbook.
• Watch the video about:
• “System Documentation - Part VI: Creating the Flowchart”
https://www.youtube.com/watch?v=YTcah66oYJU
• Students must take a note at home after they
learned the online material and watched the
video, bring it into session 5&6.
Continued to session 5-6

Thank you