The REA Model

The REA model provides structure for developing an accounting database It helps to identify It helps to The REA Model

What is an entity? Three distinct types: 1 RESOURCES 2 EVENTS 3 AGENTS Types of Entities

Resources have economic value to the organization. What are some examples? RESOURCES Agents are the people and organizations What are some examples? AGENTS

Events are the business activities What are some examples? EVENTS

Four steps: 1. Identify the pair of events 2. Identify the resources affected by each event and the agents 3. Analyze each economic exchange event to determine whether it should be decomposed 4. Determine the cardinalities of each relationship. Developing an REA Diagram

Basic REA Diagram Resource A GET Resource A Inflow Participant Internal Agent Resource BGIVE Resource B Outflow Participant Internal Agent Economic Duality External Agent Participant

Useful to divide the paper into three columns Left column should be used for resources. Middle column should be used for events. Right column should be used for agents. Step 1: Identify Economic Exchange Events

The basic economic exchange in the revenue cycle Draw sales and cash receipts events entities as rectangles Relationship between them as a diamond.

The sales event involves the disposal of the resource The cash receipts event involves the acquisition of the resource Step 2: Identify Resources and Agents

Identify the agents who participate in those events. There will always be at least one internal agent And in most cases, an external agent

Can each economic exchange event be decomposed into a combination of one or more commitment exchange events. Example: The sales event may be decomposed into the “take order” And “deliver order” Step 3: Include Commitment Events

Decomposing Sales into Orders and Sales Customer Orders Sales Customer InventorySalesperson Customer Inventory- Orders Inventory- Sales Leads to Participant

Cardinalities indicate Expressed as a pair of numbers. First number Second number Step 4: Determining Cardinalities

The minimum cardinality of a relationship Minimum cardinalities can be either 0 or 1. A minimum cardinality of zero A minimum cardinality of 1 Minimum Cardinality

The minimum cardinality of zero in the (0, N) cardinality pair Sales Made to Customer (0, N)

The minimum cardinality of 1 in the (1, 1) cardinality pair Sales Made to Customer (0, N) (1,1)

 The maximum cardinality of a relationship  Maximum cardinalities can be either 1 or N.  A minimum cardinality of 1  A maximum cardinality of N Maximum Cardinality

The maximum cardinality of N in the (0, N) cardinality pair Sales Made to Customer (0, N)

The maximum cardinality of 1 in the (1, 1) cardinality pair Sales Made to Customer (0, N) (1,1) Cardinalities are not arbitrarily chosen by the database designer.

Three basic types of relationships 1. A one-to-one relationship (1:1) 2. A one-to-many relationship (1:N) 3. A many-to-many relationship (M:N) Relationships between Entities

Sales Cash Receipts 11 A one-to-one relationship

Sales Cash Receipts N1 A one-to-many relationship

Example 2 Sales Cash Receipts 1N

A many-to-many relationship Sales Cash Receipts MN

An Entity-Relationship (E-R) diagram is a common method for portraying a database schema. An E-R diagram shows Entities are represented by Relationships between entities ER Diagrams using the REA Model

Inventory Cashier Vendor Cash Disbursement Cash Buyer (Purchasing Agent) Purchases P/D StockflowParticipant Inventory- Purchases (0,N) (1,N) (0,N) (1,1) (1,N) (0,N) Sample ERD using the REA Model

An REA diagram can be used to design a well- structured relational database. Create the schema from the REA diagram. What is a well designed relational database? Implementing the REA Diagram

Implementing an REA diagram in a relational database is a three-step process: Create a table Assign attributes to appropriate tables Use foreign keys to implement Implementing the REA Diagram, continued

The REA Model Inventory Cashier Vendor Cash Disbursement Cash Buyer (Purchasing Agent) Purchases P/D StockflowParticipant Inventory- Purchases (0,N) (1,N) (0,N) (1,1) (1,N) (0,N)

From the previously discussed REA diagram, nine tables would be created Create the Tables Assign Attributes Primary keys: Other Attributes:

FOREIGN KEYS One-to-One Relationships: One-to-Many Relationships: The primary key of the entity with the maximum cardinality of N becomes a foreign key in the entity with a maximum cardinality of 1 Implement the 1:1 and 1:M Relationships