CHAPTER 10

THE REA APPROACH TO

BUSINESS PROCESS MODELING
REVIEW QUESTIONS
1.

A user view is the set of data that a particular user needs to achieve his or
her assigned tasks.

2.

It is frameworks for designing accounting information systems that captures

the operational meaning of the user's data and provides a concise description
of it.

3.

It is a unique version of an ER diagram consisting of three entity types

(resources, events, and agents) and a set of associations linking them.

4.

Economic resources are those things of economic value that are both scarce
and under the control of the enterprise.

5.

Economic events are phenomena that affect changes (increase or decrease)

in resources.

6.

Support events include control, planning, and management activities that are
related to economic events, but do not directly affect a change in resources.

7.

Economic agents are individuals and departments that participate in an

economic event. They are parties both inside and outside the organization
with discretionary power to use or dispose of economic resources.

8.

Each economic event in an exchange is mirrored by an associated economic

event in the opposite direction.

9.

View modeling is a process in which the database designer identifies and

models the set of data that individual users need. The result of this process is
an ER diagram depicting the users data model.

10.

The labeled line represents the association or nature of the relationship

between entities.

11.

Traditional accounting activities such as recording a sale in the journal and

setting up an account receivable are not value chain activities and need not
be modeled. Capturing transaction data in sufficient detail adequately serves
traditional accounting requirements.

12.

Association is the nature of the relationship between two entities and is

represented by the labeled line connecting them.

13.

Cardinality describes the number of possible occurrences in one entity that

are associated with a single occurrence in a related entity.

14.

The four basic forms of cardinality are: zero or one (0,1), one and only one
(1,1), zero or many (0,M), and one or many (1,M).

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15.

It is the process of combining multiple individual REA diagram into an

integrated global or enterprise model.

16.

The steps involved in view integration.

1. Consolidate the individual models
2. Define primary keys, foreign keys, and attributes
3. Construct Physical database and Produce User Views

17.

Typically one of the tables in a 1:1 association has a minimum cardinality of

zero. When this is the case, the primary key of the table with the (1,1)
cardinality should be embedded as a foreign key in the table with the (0,1)
cardinality.

18.

The primary key of the 1 side table is embedded as a foreign key in the table
of the M side.

19.

Tables in an M:M association cannot accept an embedded foreign key from

the related table. Instead, a separate link table must be created to contain the
foreign keys.

20.

These are the activities that add value or usefulness to an organizations

products and services.

DISCUSSION QUESTIONS
1.

An economic exchange is a pair of mirrored economic events: the give event

and receive event. From the perspective of the organization function being
modeled, the give half of the exchange decreases the economic resource, as
represented by the outflow association. The receive half of the exchange
increases the economic resources represented by an inflow association.

2.

The upper cardinalities for each of the two related entities define the overall
association between them. For example, if the cardinality at one end of the
association line is (0,1) and at the other end it is (1,M) then the association
between them is one-to-many (1:M).

3.

The database designer should select a primary key that logically and uniquely
defines the nonkey attributes in the table. In some cases this is accomplished
with a simple sequential code such as an Invoice Number, Check Number, or
Purchase Order number. In other situations block codes, group codes,
alphabetic codes, and mnemonic codes, are better choices.

4.

Each event must be linked to at least one resource and a least two agents.
One of the agents is internal to the organization and the other is usually
external. In some types of transaction, however, the second agent may also be
internal.

5.

The convention in an REA diagram is to treat such transactions as if they are

sales. The clerk giving up control and reducing the resource (raw materials) is
the internal agent and the clerk assuming control and increasing the resource
(work-in-process) is the external agent.

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6.

Journals, ledgers, and double-entry bookkeeping are the traditional

mechanisms for formatting and transmitting accounting data, but they are not
essential elements of an accounting database. REA systems capture the
essence of what accountants account for by modeling the underlying economic
phenomena directly. Organizations employing REA can thus produce financial
statements, journals.

7.

Economic events are phenomena that affect changes (increase or decrease) in

resources. Examples include sales of products to customers, receipt of cash
from customers, and purchases of raw material from vendors. Support events
include control, planning, and management activities that are related to
economic events, but do not directly affect a change in resources. Examples
of support events include: 1) determining inventory availability for a customer
prior to a sale, 2) verifying supporting information (performing a three-waymatch) prior to disbursing cash to a vendor, and 3) checking customer credit
before processing a sale.

8.

An REA model must, as a minimum, include the two economic events that
constitute the give and receive activities that reduce and increase economic
resources in the exchange. In addition it may include support events, which do
not change resources directly.

9.

REA is modeling focuses on value chain activities: those that use cash to
obtain resources such as equipment, materials, and labor and those that
employ these resources to earn new revenues. Traditional accounting events
such as recording a sale in the journal and setting up an account receivable
are not value chain activities and need not be modeled. Capturing transaction
data in sufficient detail adequately serves traditional accounting requirements.

10.

The inclusion of link tables in a REA diagram creates a conflict with the rule
that an event entity should be connected to at least one resource and at least
two agent entities. Although link tables are a technical requirement for
implementing a M:M association in a relational database, they are not a
technical requirement for modeling the database. Including the link table in an
REA diagram disrupts its visual integrity and adds little to the conceptual
model. During implementation, the database designer will create the link tables
needed to make the database function.

11.

Unlike tangible economic resources such as cash and inventory, time does not
have a stock flow element and cannot be stored. It is increased simultaneously
decreased by various employee activities. In situations where employee
services are directly tracked to products produced or services rendered to
clients (i.e., consulting or public accounting) it makes sense to model this
resource. In situations where employee time on the job is not tracked to
specific results then modeling this entity and transforming it into a physical
database table serves no purpose.

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12.

Normalization is the process of systematically identifying and removing

repeating groups, partial dependencies, and transitive dependencies from the
table(s) under review. Tables in 3NF will be free of anomalies and will meet two
conditions:
1) All nonkey attributes will be wholly and uniquely dependent on (defined by)
the primary key.
2) None of the nonkey attributes will be dependent on (defined by) other
nonkey attributes.

MULTIPLE-CHOICE QUESTIONS
1. e
2. d
3. c
4. e
5. c
6. a
7. c
8. c
9. c
10. c
PROBLEMS
1. The three differences between REA diagrams and ER diagrams:
1)

Entities on REA diagram, are divided into three classes (Resources, Events,
and Agents) and organized into constellations by class on the diagram.
Entities in ER diagrams are of one class and their proximity to other entities
is determined by their cardinality and by what is visually pleasing to keep the
diagrams readable.

2)

ER diagrams present a static picture of the underlying business phenomena.

Relationships between data are shown through cardinality and associations, but
the sequence of activities that determine the cardinality and associations are
not clearly represented. REA diagrams, however, are typically organized from
top to bottom within the constellations to focus on the sequence of events.

3)

The third difference between ER and REA diagrams pertains to naming

conventions for entities. In ER diagrams, entity names are always
represented in the singular noun form. REA modeling applies this rule when
assigning names to resource and agent entities. Event entities, however, are
given verb (action) names such as Sell Inventory, Take Order, or Receive
Cash.

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2.

B is the correct association. Each Sell Auto event could involve one or many
autos but each auto in inventory is unique and can be sold only once or has not
yet been sold.

3.

The proper association is C. Each cash receipt is for only one Sell Auto event
and each Sell Auto event requires one immediate payment in full. Bentley should
never have a situation where a record exists in the Sell Auto table without a
corresponding record in the Receive Cash table.

4.

B is the proper association. Each customer may buy zero or many times from
Bentley but each sale is to only one customer.

5.
Resources
Raw Material
Inventory

Events

Agents

Reduces

Warehouse Clerk

Pick Inventory
Requests

Causes

Finished Goods
inventory

Increases

Produce

Performs

Production Worker

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6.

Review Items

Query Availability

Requests

Customer

Related
to
Purchases

Process Order
Reduces

Book
Inventory

Sales
Clerk

Take Order

Duality

Receives Cash
Remits

Customer
Increases

Cash

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7.

REA Model - Feinman Computers

ANSWER A and B:
Customer
Places Order

Process
Order

Reserves

Inventory

Take Order

Causes

Sales Clerk

Ships

Shipping Clerk

Reduces

Ship Product
Receives

Duality

Increases

Cash

Customer
Remits

Receive Cash
Processes
Remittance

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Cash Receipts
Clerk

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ANSWER C

Problem 10 - 7 Tables, Keys, and Attributes for Feinman Computers

Table Name

Primary Key

Inventory

Item Number

Cash

Account

Take Order

Order

Ship Product

Invoice

Receive Cash

Remittance

Customer

Customer Number

Supplier

Supplier Number

Employee

Employee Number

Foreign Key(s)

Attributes
Description, Warehouse Location, Quantity on
Hand, Reorder Point, On-Order Quantity, Available
for Sale, Supplier Number, Unit Cost, Retail Price
Balance

Inquiry Number
Customer Number
Employee Number
Order Number
Customer Number
Employee Number
Customer Number
Employee number
Account Number

Order Date, Promised Date, Terms Of Trade,

Invoice Amount, Shipped Date, Due Date, Close

Customer Check Number, Date, Amount

Name, Address, Line of credit, Available Credit,
Current Balance Last Payment Date
Name, Address, Terms of Trade, Vendor lead
time, Carrier used, On-time delivery record,
Incomplete shipments record, Damaged shipments
record, Price disputes record

SSN, Name, Address, Date of Birth, Job Title,

Data Hired, Pay Rate, Vacation Time Accrued

Linking Tables
Attributes

Table Name

Primary Key

InventoryOrder Link

Item Number
Order Number

Quantity Ordered

InventoryShip Link

Item Number
Invoice Number

Quantity Shipped, Actual Price

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8.

REA Model - K Cannon, Inc.

ANSWER A and B:

Flags Item
Inventory

Processes
Order Product

Purchasing Clerk

Receives
Causes
Ships
Supplier
Increases
Receive Product

Prepares

Duality

Decreases
Cash

Disburse Cash

Receives

Processes

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Receiving

Supplier

Cash
Disbursement
Clerk

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ANSWER C.

Problem 10- 8 Tables, Keys, and Attributes for K Cannon Inc.

Table Name
Inventory

Cash

Primary Key

Foreign Key(s)

Description, Warehouse Location, Quantity on Hand,

Reorder Point, On-Order Quantity, Available for Sale,
Supplier Number, Unit Cost, Retail Price. Turnover rate,
Lead time, Usage rate, Economic order quantity,
Stockout history, Scrap history

Item Number

Account

Order Product

Purchase Order

Receive Product

Receiving Report

Disburse Cash

Check Number

Supplier

Supplier Number

Employee

Employee Number

Attributes

Balance
Supplier
Number

Order Date, Expected Delivery Date,

Expected Total Price

Supplier Number
Employee Number
Purch Order Number
Check Number

Date Received, Carrier, Total Amount Due, Due

Supplier Number
Cash Disb Clerk
(EMPL)
Account Number

Amount, Date

Name, Address, Terms of Trade, Vendor lead time,

Carrier used, On-time delivery record, Incomplete
shipments record, Damaged shipments record, Price
disputes record
SSN, Name, Address, Date of Birth, Job Title,
Data Hired, Pay Rate, Vacation Time Accrued

Linking Tables

Table Name

Primary Keys

Attributes

Ord-ProdInven Link

Item Number
Purchase Order Number

Order Quantity

Rec-ProdInven Link

Item Number
Receiving Report

Quantity Received, Actual Unit Cost, Condition

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9.

REA Model -Payroll System

ANSWER A and B:

NOTE: The task of preparing the payroll register described in the case is not an REA event and
should not be modeled. This is an accounting activity. All attributes needed to perform this
activity are captured in the Get Time and Disburse Cash event tables. The payroll register is
simply a view that may be prepared from these tables.

Problem 10- 9 Tables, Keys, and Attributes

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10.

REA Model - Fixed Asset System

ANSWER A and B:

NOTE: The task of recording depreciation is not an REA event and should not be modeled in an
REA diagram. Depreciation is an accounting technique that arbitrarily allocates some of the cost
of the asset to various periods. Information about the depreciation method and accumulated
depreciation is stored in the Fixed Asset Inventory table to support the task of reporting periodic
depreciation charges. The calculation process is, however, not an event.

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ANSWER C.

Problem 10-10 Tables, Keys, and Attributes

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