1. Technology Review-II Professor Martin Professor Xiong CSUS
This lecture is based primarily on Romney & Steinbart(2003). It also draws on Martin (2002).
Updated on: Monday, September 9, 2003

2. Agenda REA Developing a REA Diagram
Implementing an REA Diagram in a Relational Database
The Purpose of REA

3. 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.

4. 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

5. 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

6. Basic REA Template Resource A Get Resource A External Agent Resource B
Internal
Agent
Basic REA Template
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

7. 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

8. 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

9. Types of Entities
Resources are defined as those things that have economic value to the organization.
What are some examples?
cash
inventory
equipment

10. 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

11. 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

12. 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.

13. Structured Relationships
Inflow
Resource A
Get
resource A
Economic
duality
Outflow
Resource B
Give up
resource B

14. 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

15. Agenda REA Developing a REA Diagram
Implementing an REA Diagram in a Relational Database
The Purpose of REA

16. 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.

17. 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.

18. 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.

19. 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.

20. 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).

21. 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.

22. 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.

23. 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

24. 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.

25. 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
Customer
(1, 1)

26. 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.

27. 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

28. 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.

29. Examples ) Cash Sales Receipts Sales Cash Receipts Sales Cash Receipts
(0, 1)
(1, 1)
Sales
Cash
Receipts
(1, 1)
(0, N)
Sales
Cash
Receipts
(0, 1)
(1, N)
Sales
Cash
Receipts
(0, N)
(1, N)

30. Agenda REA Developing a REA Diagram
Implementing an REA Diagram in a Relational Database
The Purpose of REA

31. 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.

32. 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.

33. Create Tables Inventory Sales Salesperson Customer Cashier
Cash collections
Cash
Sales-inventory
Sales-cash collections

34. 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.

35. 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.

36. 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.

37. Agenda REA Developing a REA Diagram
Implementing an REA Diagram in a Relational Database
The Purpose of REA

38. 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

39. 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)

40. 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.

41. 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

42. 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.

43. Topics Discussed REA-Introduction Developing a REA Diagram
Implementing a REA Diagram in a Relational Database

44. Review
Which of the following is not considered a resource in an REA model?
Cash
Accounts Receivable
Inventory
Equipment

45. Review
2. Which of the following is not a type of entity in the REA data model?
Customers
Sales
Invoices
Delivery trucks

46. Review
3. Which type of relationship cardinality must be implemented in a relational database as a separate table?
One-to-one relationship
One-to-many relationship
Many-to-many relationship
all of the above

47. Review
4. In a company pays for each purchase it makes with a separate check and does not make installment payments on any purchases, then the relationship between cash disbursement and purchases would be modeled as being with of the following?
One-to-one relationship
one-to-many relationship
many-to-many relationship
paid-in-full relationship

48. Review
5. The key of a many-to-many relationship between the sales and inventory events would be:
invoice number
item number
both invoice number and item number
either invoice number or item number

49. Review
6. Which of the following elements of the REA data model must be implemented as tables in a relational database?
Resources
events
agents
all of the above

50. Review
7. Which set of cardinality pairs most accurately models the sales of low-cost, mass-produced items by a retail store?
inventory(0,N) – (0,N) Sales
inventory(0,N) – (1,N) Sales
Inventory (1,N) – (1,N) Sales
inventory(1,N) – (1,N) Sales

51. Review
8. A company wants to store information about both currently used and alternative suppliers?
Purchases(0,N) – (0,1) suppliers
Purchases(1,N) – (1,1) suppliers
Purchases(0,1) – (1,N) suppliers
Purchases(1,1) – (0,N) suppliers

52. Example
Draw an REA Diagram , complete cardinalities, for Joe’s revenue cycle
Joe’s is a small ice cream shop located near the local university’s baseball field. Joe’s serves walk-in customers only. The shop carries 26 flavors of ice cream. Customers can buy cones, sundaes, or shakes. When a customer pays for an individual purchase, a sale transaction usually includes just one item. When a customer pays for a family or a group purchase, however, a single sale may include many different items. All sales must be paid for at the time the ice creams is served.