Presentation is loading. Please wait.

Presentation is loading. Please wait.

An REA Model of an Economic Exchange William E. McCarthy* Michigan State University *http://www.msu.edu/user/mccarth4/http://www.msu.edu/user/mccarth4/

Similar presentations


Presentation on theme: "An REA Model of an Economic Exchange William E. McCarthy* Michigan State University *http://www.msu.edu/user/mccarth4/http://www.msu.edu/user/mccarth4/"— Presentation transcript:

1 An REA Model of an Economic Exchange William E. McCarthy* Michigan State University *http://www.msu.edu/user/mccarth4/http://www.msu.edu/user/mccarth4/

2 Cookie-Monster (the customer) and Elmo (the entrepreneur) meet in the (real or virtual) marketplace, thus setting the stage for an Economic Exchange

3 Economic Event Economic Agent Economic Resource duality Source: W. E. McCarthy The REA Accounting Model: A Generalized Framework for Accounting Systems in a Shared Data Environment, The Accounting Review, July 1982, pp W.E. McCarthy The REA Modeling Approach to Teaching Accounting Information Systems, Issues in Accounting Education, November 2003, pp

4 Cookie-Monster (the customer) and Elmo (the entrepreneur) engage in a SHIPMENT (transfer of Cookie Inventory)

5 Give Take Economic Resource inside participation outside participation inside participation stock-flow Economic Event Economic Agent Economic Resource duality Economic Event REA model of cookie sale from entrepreneurs (ELMO) perspective

6 Cookie-Monster (the customer) and Elmo (the entrepreneur) engage in a PAYMENT (transfer of Cash)

7 Give Take Economic Resource inside participation outside participation inside participation stock-flow Economic Event Economic Agent Economic Resource duality Economic Event REA model of cookie sale from entrepreneurs (ELMO) perspective

8 Give Take Economic Resource inside participation outside participation inside participation stock-flow Economic Event Cash Receipt Economic Agent Salesperson Economic Agent Customer Economic Agent Customer Economic Agent Cashier Cash Economic Resource Cookies duality Economic Event Sale more general exchange model from the entrepreneurs (ELMOs) internal perspective

9 Product#DescriptionPriceQOH P-1Chocolate Chip P-2Chocolate P-3Peanut Butter P-4Pecan Invoice # Receipt Timestamp Amount Applied I-12JUL I-23JUL I-25JUL I-38JUL I-48JUL Invoice#Dollar Amount DateSalesperson Employee# Customer # I JULE-1234C-987 I JULE-1235C-888 I JULE-1236C-999 I JULE-1237C-999 Product#Invoice# Quantity P-2I-15 P-3I-110 P-3I-220 P-4I-39 P-1I-44 P-3I-45 COOKIES SALE COOKIES-stockflow-SALE SALE-duality- CASH_RECEIPT Partial Database for Elmos Cookie Business Why is this invoice amount $14.75 ?? How is customer paying for this ???

10 A business process is a set of activities that takes one or more kinds of input and creates an output that is of greater value to the customer (Hammer and Champy) A value chain is a purposeful network of business processes aimed at assembling the individual components of a final product (i.e., its portfolio of attributes) of value to the customer (Porter and Geerts/McCarthy) Part of ELMOs Value Chain for Providing Cookies cookie ingredients Acquisition Cycle cash business process labor cookies Conversion Cycle business process Revenue Cycle cash business process value chain

11 Different perspectives on REA modeling needed for enterprise modeling (value chains) and collaboration space (supply chains) Enterprise modeling (as evidenced in normal ERP systems) is done from the perspective of one company or entrepreneur. Business processes are viewed as components of a single value chain. A single exchange (like the sale of a product for money) would be modeled twice, once in the enterprise system of each trading partner. Collaboration space modeling (as evidenced in ebXML or ISO Open- edi) is done from a perspective independent of each trading partner. A single exchange is modeled once in independent terms that can be then mapped into internal enterprise system components. Supply chains are networks of business processes that alternate internal transformations and external exchanges (definition due to Bob Haugen). REA modeling works in both cases and the independent to trading partner mapping is absolutely straightforward and completely defined.

12 Business Process Business Process Business Process Business Process Business Process Business Process Independent view of Inter-enterprise events Enterprise Business Process Business Process Business Process Illustration of Perspective: Trading Partner vs. Independent Trading Partner view of Inter-enterprise events (upstream vendors and downstream customers) Blue arrows represent flow of goods, services, and cash between different companies; green arrows represent flows within companies SOURCE: Adapted from ISO , K. Morita Used for collaboration space modeling

13 initiating transfer Economic Resource participation stock-flow Economic Event Economic Agent Economic Resource duality Economic Event REA model of cookie sale from independent (collaboration space) perspective responding transfer

14 Cookie-Monster and Elmo after their economic exchange (both economic agents have now reached higher levels of utility)

15 Cookie Monster and Elmo are of course characters from the Public Broadcasting Service TV show Sesame Street*. Their use here is only illustrative. Cookie Monster is a great example of a typical buyer (has money, wants goods) because he is most happy when he has a cookie to eat. The use of Elmo as a typical seller (has goods, wants money) is only a convenient illustration. The Cookie Monster shown was a favorite toy of my daughter Meghan. The Elmo was bought for me by my wife Jane. * see


Download ppt "An REA Model of an Economic Exchange William E. McCarthy* Michigan State University *http://www.msu.edu/user/mccarth4/http://www.msu.edu/user/mccarth4/"

Similar presentations


Ads by Google