1. Accounting Information Systems 9th Edition
Marshall B. Romney
Paul John Steinbart
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

2. Data Modeling and Database Design
Chapter 5
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

3. Learning Objectives
Discuss the steps for designing and implementing a database system.
Use the REA data model to design an AIS database.
Draw an Entity-Relationship (E-R) diagram of an AIS database.
Build a set of tables to implement an REA model of an AIS in a relational database.
Read an E-R diagram and explain what it reveals about the business activities and policies of the organization being modeled.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

4. Introduction
Ashton Fleming, the accountant for S&S, is learning that designing a relational database for S&S is not as easy as the computer store salesperson made it seem.
He is planning to attend a seminar to teach accountants the basics on how to design a relational database.
©2003 Prentice Hall Business Publishing,
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5. Introduction
Ashton hopes to have answers for the following questions by the end of the seminar:
What are the basic steps to follow when designing a database?
When creating a relational database, how exactly do you decide which attributes belong in which tables?
©2003 Prentice Hall Business Publishing,
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6. Introduction
How can you document an AIS that is implemented as a relational database?
This chapter explains how to design and document a relational database for an accounting information system.
It focuses on one of the aspects of database design, data modeling.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

7. Introduction
This chapter also introduces the REA accounting model and Entity-Relationship (E-R) diagrams.
It shows how to use these tools to build a data model of an AIS.
Finally, it describes how to implement the resulting data model in a relational database.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

8. Discuss the steps for designing and implementing a database system.
Learning Objective 1
Discuss the steps for designing and implementing a database system.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

9. Designing and Implementing a Database System
There are six basic steps involved in designing and implementing a database system. They are:
Initial planning to determine the need for and feasibility of developing a new system.
Identifying user needs.
Developing the contextual-, external-and internal-level schemas.
©2003 Prentice Hall Business Publishing,
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10. Designing and Implementing a Database System
Translating the internal-level schema into the actual database structures that will be implemented in the new system.
Transferring all data from the existing system to the new database.
Using and maintaining the new system.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

11. Use the REA data model to design an AIS database.
Learning Objective 2
Use the REA data model to design an AIS database.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

12. The REA Data Model
Data modeling is the process of defining a database so that it faithfully represents all aspects of the organization, including its interactions with the external environment.
©2003 Prentice Hall Business Publishing,
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13. The REA Data Model Data Modeling in the Database Design Process
Planning
Operation and
maintenance
Requirements
analysis
Implementation
Data modeling occurs here
Design
Coding
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14. The REA Data Model
The REA data model is a conceptual modeling tool specifically designed to provide structure for designing AIS databases.
The REA data model provides structure in two ways:
By identifying what entities should be included in the AIS database
By prescribing how to structure relationships among the entities in the AIS database
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

15. Sample REA Diagram Inventory Sales Customer Cash Cashier Stock flow
Sales Person
Participates in
Stock flow
Inventory
Sales
Participates in
Economic
Duality
Customer
Participates in
Stock flow
Cash
Receive Cash
Cashier
Participates in
©2003 Prentice Hall Business Publishing,
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16. Basic REA Template Resource A Get Resource A External Agent Resource B
Internal
Agent
Participates in
inflow
Resource A
Get Resource A
Participates in
External
Agent
Economic
Duality
Participates in
Internal
Agent
outflow
Resource B
Give up Resource B
Participates in
External
Agent
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17. An AIS Viewed as a Set of Give-to-Get Exchanges
Give Inventory
Get Cash
Revenue Cycle
Give Cash
Get Inventory
Expenditure Cycle
Give Cash
Get Employee’s
Time/Service
Human Resources/Payroll Cycle
Give Cash
Production Cycle
Get Cash
Get Employee’s
Time/Service
Give/Use Raw
Materials
Get Finished Goods Inventory
Financing Cycle
Give (Use) Machine
Time & Services
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18. Types of Entities Resources acquired and used by an organization
An entity is any class of objects about which data is collected.
The REA data model classifies entities into three distinct categories:
Resources acquired and used by an organization
Events engaged in by the organization
Agents participating in these events
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

19. Types of Entities
Resources are defined as those things that have economic value to the organization.
What are some examples?
cash
inventory
equipment
©2003 Prentice Hall Business Publishing,
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20. Types of Entities
Events are the various business activities about which management wants to collect information for planning or control purposes.
What are some examples?
sales events
taking customer orders
©2003 Prentice Hall Business Publishing,
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21. Types of Entities
Agents are the third type of entity in the REA model.
Agents are the people and organizations that participate in events and about whom information is desired.
What are some examples?
employees
customers
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22. Structured Relationships
The REA data model prescribes a basic pattern for how the three types of entities (resources, events, and agents) should relate to one another.
©2003 Prentice Hall Business Publishing,
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23. Structured Relationships
Inflow
Resource A
Get
resource A
Economic
duality
Outflow
Resource B
Give up
resource B
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24. Structured Relationships
Participates in
Internal Agent
Get
resource A
Participates in
External Agent
Economic
duality
Participates in
Internal Agent
Give up
resource B
Participates in
External Agent

25. Draw an Entity-Relationship (E-R) diagram of an AIS database.
Learning Objective 3
Draw an Entity-Relationship (E-R) diagram of an AIS database.
©2003 Prentice Hall Business Publishing,
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26. Sample E-R Diagrams Employers Supervisors Departments Cash Receipts
Managed By
Employers
Supervisors
Part of
Manages
Departments
Customer Orders
Part of
Cash Receipts
Part of
Sales
Part of
Players
Teams
Part of
League
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27. Entity-Relationship Diagram
An Entity-Relationship (E-R) diagram is one method for portraying a database schema.
It is called an E-R diagram because it shows the various entities being modeled and the important relationships among them.
In an E-R diagram, entities appear as rectangles, and relationships between entities are represented as diamonds.
©2003 Prentice Hall Business Publishing,
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28. Entity-Relationship Diagram
Resources
Events
Line items
Inventory
Sales
(0, N)
(1, N)
(0, N)
Pays for
Increases
Cash
Cash
collections

29. Entity-Relationship Diagram
Events
Agents
(1, 1)
Sales
Party to
(1, N)
Salesperson
(1, 1)
(0, N)
Made to
(0, N)
Pays for
Customer
Received from
Cash
collections
Received by
Cashier

30. Developing an REA Diagram
Developing an REA diagram for a specific transaction cycle consists of three steps:
Identify the pair of events that reflect the basic economic exchange.
Identify the resources affected by each event and the agents who participate in those events.
Determine the cardinalities of each relationship.
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31. Identify Economic Exchange Events
The basic economic exchange in the revenue cycle involves the sale of goods or services and the subsequent receipt of cash in payment for those sales.
The REA diagram for S&S’s revenue cycle shows the drawing of sales and cash collections events entities as rectangles and the relationship between them as a diamond.
©2003 Prentice Hall Business Publishing,
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32. Identify Economic Exchange Events
In drawing an REA diagram for an individual cycle, it is useful to divide the paper into three columns, one for each type of entity.
Left column should be used for resources.
Middle column should be used for events.
Right column should be used for agents.
©2003 Prentice Hall Business Publishing,
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33. Identify Resources and Agents
Once the events of interest have been specified, the resources that are affected by those events need to be identified.
The sales event involves the disposal of inventory.
The cash collections event involves the acquisition of cash.
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34. Identify Resources and Agents
After specifying the resources affected by each event, the next step is to identify the agents who participate in those events.
There will always be at least one internal agent (employee) and, in most cases, an external agent (customer).
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35. Specify Cardinalities
The cardinality of a relationship indicates how many occurrences of one entity in the relationship can be linked to a single occurrence of the other entity in the relationship.
Cardinalities are often expressed as a pair of numbers.
The first number is the minimum, and the second number is the maximum.
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36. Specify Cardinalities
The minimum cardinality of a relationship indicates the fewest number of rows that can be involved in that relationship.
Minimum cardinalities can be either 0 or 1.
A minimum cardinality of zero means that each occurrence of the entity on the other side of the relationship need not be linked to any occurrences of the entity on this side of the relationship.
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37. Specify Cardinalities
The minimum cardinality of zero in the (0, N) cardinality pair to the left of the customer entity in the customer-sales relationship indicates that a given customer need not be linked to any sales events.
Made to
Sales
(0, N)
Customer
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38. Specify Cardinalities
Minimum cardinalities of zero are common for relationships between two temporarily linked events. Why?
Because at any given time the second event in the pair may not yet have occurred.
A minimum cardinality of 1 indicates that each instance of that entity must be associated with at least one instance of the other entity.
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39. Specify Cardinalities
The minimum cardinality below the sales entity in the sales-customer relationship reflects the general business rule that each sales event must be associated with some specific customer.
Party to
Sales
Salesperson
(1, 1)
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40. Specify Cardinalities
The maximum cardinality of a relationship indicates the largest number of rows that can be involved in that relationship.
Maximum cardinalities can be either 1 or N.
The N indicates that each row in the table may be linked to many rows in the other table.
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41. Specify Cardinalities
Three basic types of relationships between entities are possible, depending on the maximum cardinality associated with each entity.
One-to-one relationship
One-to-many relationship
Many-to-many relationship
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42. Specify Cardinalities
Cardinalities are not arbitrarily chosen by the database designer.
They reflect facts about the organization being modeled and its business practices obtained during the requirements analysis stage of the database design process.
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43. Learning Objective 4
Build a set of tables to implement an REA model of an AIS in a relational database.
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44. Implementing an REA Diagram in a Relational Database
An REA diagram can be used to design a well-structured relational database.
A well-structured relational database is one that is not subject to update, insert, and delete anomaly problems.
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45. Create Tables
A properly normalized relational database has a table for each entity and each many-to-many relationship.
From the previously discussed REA diagram, nine tables would be created: one for each of the seven entities and one for each of the many-to-many relationships.
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46. Create Tables Inventory Sales Salesperson Customer Cashier
Cash collections
Cash
Sales-inventory
Sales-cash collections
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47. Identify Attributes for Each Table
Primary keys:
Usually, the primary key of a table representing an entity is a single attribute.
Other Attributes:
Additional attributes are included in each table to satisfy transaction processing requirements.
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48. Implement One-to-One and One-to-Many Relationships
One-to-One Relationships:
In a relational database, one-to-one relationships between entities can be implemented by including the primary key of one entity as a foreign key in the table representing the other entity.
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49. Implement One-to-One and One-to-Many Relationships
In a relational database, one-to-many relationships can be also implemented in relation to databases by means of foreign keys.
©2003 Prentice Hall Business Publishing,
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50. Learning Objective 5
Read an E-R diagram and explain what it reveals about the business activities and policies of the organization being modeled.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart

51. Documentation
REA diagrams are especially useful for documenting an advanced AIS built using databases.
REA diagrams provide two important types of information about a database:
Information about the relationships among data items
Information about the organization’s business practices
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52. Information About Database Content
REA diagrams explicitly depict the relationships among the various data items that are stored in the accounting database.
Flowcharts only show which files exist and describe their basic characteristics.
Data flow diagrams (DFD) describe the contents of each file in the system, but do not explicitly show how those files relate to one another.
©2003 Prentice Hall Business Publishing,
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53. Information About Business Practices
The cardinalities in REA diagrams provide useful information about the nature of the company being modeled and the business policies that it follows.
Resources
Events
Line items
Inventory
Sales
(0, N)
(1, N)
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54. Information About Business Practices
The relationship between sales and inventory is called line items and represents the fact that each sale consists of one or more items of merchandise.
Each item appears as a separate line item on the sales invoice.
The quantity sold indicates that a customer may buy more than one of a given item.
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55. Organization Specificity of REA Diagrams
Due to the fact that S&S sells mass-produced goods, its REA diagram models the relationship between sales and inventory as being many-to-many.
An REA diagram for a rare art dealer would depict the relationship between sales and inventory as being one-to-many.
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56. Extracting Information From the AIS
A complete REA diagram serves as a useful guide for querying an AIS database.
Queries can be used to generate journals and ledgers from a relational database built on the REA model.
(0, 1)
(1, N)
Sales
Cash
collections
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57. Extracting Information From the AIS
In a one-to-many relationship between cash collection and sales, remittance number is a foreign key in the sales table.
Each sales transaction is paid in full by a cash collection event.
What is the query logic?
Total accounts receivable is the sum of all sales for which there is no remittance number.
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58. End of Chapter 5 ©2003 Prentice Hall Business Publishing,
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