1. Database Basics Overview of Databases

2. Arrivederci Pacioli Five primary weaknesses of traditional accounting system (debits and credits): Focus on subset of business activities Delay in data capture and processing Captures limited transaction information Duplicate data Expensive and defensive controls

3. Why is understanding relational databases important? All modern accounting software / ERP software is supported by relational databases. To understand how these systems operate, you need to understand relational databases. Custom reports are created using query writing languages to pull information from the database. If you do not understand the databases, it is very difficult to create reports.

4. Motivation for“REA” Component Modern IS’s run on top of databases, making it important to understand how databases store and process information. E-R is the standard for modeling RDBMS REA models provide an intermediate view of business processes. –Value chain, value system, and strategy are high level analyses –REA is intermediate level –Flowcharts are low level

5. Consider the transaction captured by this source document:

6. What entities are involved?

7. What tables are needed?

8. Is all information accounted for?

9. Relational Data Bases We correct these problems by adding another table to create a “normalized” data base Data duplication is minimized Note the “linked” primary key in the Sales-Inventory table

10. Normalization example—tables Vendor Vendor ID Vendor Name Vendor Address Discount Percentage Discount Time Item Item number Item description Item price Purchase PO number Purchasing agent ID Date ordered Shipping terms Shipping date Vendor ID Purchase-Item Item number PO number Quantity ordered

11. Entity-Relationship (E-R) Modeling E-R Modeling is one of many ways to draw pictures of businesses. Other modeling choices include: –Data flow diagrams (DFD) –Flowchart E-R modeling is an ART—may be a bit of a stretch...it is not a science.

12. Entity-Relationship—(E-R) Modeling Entities represent –People –Places –Things –Occurrences in time (like transactions) Relationship –Link related entities

13. E-R Modeling Example Hospital surgery room environment Operations are performed on patients. One doctor performs the operation while being assisted by several nurses.

14. E-R Example Nurse Patient Doctor Operation Operating Room

15. REA vs. E-R The REA framework says that the world consists solely of Resources, Events, and Agents (Locations?) E-R modeling is a method of drawing pictures.

16. REA Diagrams McCarthy (1979, 1982) determined that business systems consist “solely” of R esources E vents A gents McCarthy (1979, 1982) also identified common patterns of Resources, Events, and Agents R esource E vent Inside A gent Outside A gent

17. REA Diagrams Resource - anything under the firm’s control, that provides value and of which there is limited quantity Event - an occurrence that changes the quantity of a resource Agent - someone responsible for the event. One is from the organization (internal) the other is outside (external) Location - where the event occurred—sometimes included

18. Resource Increase Event Outside Agent Inside Agent Resource Decrease Event Outside Agent Inside Agent REA “Exchange” Pattern Decrease events are always linked to increase events - Duality No “free lunch” - firms do not give up resources without receiving something

19. Integrated REA Diagrams Exchange REA Diagrams are combined to create an integrated REA Diagram. Resource Increase Event Outside Agent Inside Agent Resource Decrease Event Outside Agent Inside Agent Increase Event Decrease Event Inside Agent Inside Agent Outside Agent Outside Agent

20. Integrated REA Diagrams Complete Integrated REA Diagrams include an increase event and a decrease event for each resource. Resources must come from somewhere Resources must go somewhere May choose not to model complete system. This is a new model, new field, developing field...but the concepts are well-accepted in the database field UN/CEFACT (Center for Trade Facilitation) ISO

21. REA Data Modeling Process ¶REA framework - provides conceptual model ¸Tables - Identify required tables and fields ¹Database - Build tables, establish relationships, and input data into relational database

22. Cardinalities Definition: the number of times each individual entity can participate in the relationship Relationships between entities determine how tables must be related...entities lead to tables

23. Cardinalities Maximums –Business process –Rules for relationships in database Minimums –Business process –Information for controls in database

24. Emergency Room E-R Example Doctor - Operation: A doctor can have many operations An operation can have one responsible doctor Nurse - Operation A nurse can have many operations An operation can have many nurses

25. Steps in REA data modeling  Identify the business processes  Identify the resources affected by each event and the agents who participate in each event  Combine events into the basic exchange template  Add information about cardinalities  Identify magnitude of relationships  Implement Model in Relational Database:  Table for each entity  Table for each M:N relationship  Use foreign keys for 1:1 and 1:N relationships  Develop a set of normalized tables

26. Queries—putting it back together Some query basics Database languages...data definition, data manipulation, data query Data dictionary...to see what the data look like Structured query language (SQL)...standardized query language with many specializations