CHAPTER 10 THE REA APPROACH TO BUSINESS PROCESS MODELING

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).

© 2008 Cengage Learning

Chapter 10 Page 370 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 organization’s 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.

© 2008 Cengage Learning

Chapter 10 Page 371 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.

© 2008 Cengage Learning

Chapter 10 Page 372 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.

© 2008 Cengage Learning

Chapter 10 Page 373

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

© 2008 Cengage Learning

Chapter 10 Page 374 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

© 2008 Cengage Learning

Chapter 10 Page 375

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

© 2008 Cengage Learning

Cash Receipts Clerk

Chapter 10 Page 376 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

© 2008 Cengage Learning

Chapter 10 Page 377 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

© 2008 Cengage Learning

Receiving

Supplier

Cash Disbursement Clerk

Chapter 10 Page 378 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

© 2008 Cengage Learning

Chapter 10 Page 379

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

© 2008 Cengage Learning

Chapter 10 Page 380

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.

© 2008 Cengage Learning

Chapter 10 Page 381 ANSWER C.

Problem 10-10 Tables, Keys, and Attributes

© 2008 Cengage Learning