1. Accounting Information System
Economic
Event
Agent
Resource
duality
REA Method
Accounting Information System
Cleta D’Souza
MBA 731-Fall 2007

2. AIS- Accounting Information System
“An accounting information system is one that captures, stores, manipulates, and presents data about an organization’s value-adding activities to aid decision makers in planning, monitoring, and controlling the organization”

3. REA
Resources, Events, Agents (REA) is a model of how an accounting system can be reengineered for the computer age.
REA stands for,
R- Resource
E- Event
A- Agent
REA accounting model is developed using data modeling techniques
Its structure consists of sets representing economic resources, economic events and economic agents and the relationships that exists between them
REA was originally proposed in 1982 by William E. McCarthy as a generalized accounting model, and contained the concepts of resources, events and agents.

4. Categorization of Accounting Frameworks
TABLE 1
Categorization of Accounting Frameworks
Year
Title
Author
Ideas
Events Accounting
1969
An ‘events’ approach to basic accounting theory
Sorter
Events accounting
Disadvantages of Value theory
Operational rules
1970
Towards an "events" theory of accounting
Johnson
Forecast and observational verification criteria
Definition of permissible  aggregation
Mathematical model
1962
An inductive approach to accounting theory
Schrader
Difference between observed data and manipulated data
Database Accounting
1971
A unified approach to the theory of accounting and information systems
Colantoni, Manes and Whinston
Introduction of database concepts
Event coding
Key algebra
1975
A structuring of an events-accounting information system
Lieberman and Whinston
Three part structure
User-defined database characteristics
Self-organizing database capabilities
1976
Design of a multi-dimensional accounting system
Haseman and Whinston
Hierarchical organization of events database
Definition of restructuring functions
1977
A relational approach to accounting models
Everest and Weber
Data independence
Normalization

5. Semantically-Modeled Accounting
1939
What's wrong with accounting?
Goetz
Maintain an unadulterated Basic Historical Record
1949
Management planning and control
Basic Pecuniary Record plus a legal- financial supplement
1948
Pretiale Wirtschaftslenkung, Volume 2 [Pretiale Lenkung]
Schmalenbach
Develop a basic accounting system with no particular objective (a Grundrechnung)
1979
An entity-relationship view of accounting models
McCarthy
Second generation data modeling
Artifact-free design
REA Accounting
1982
The REA accounting model:  A generalized framework for accounting systems in a shared data environment
McCarthy
REA accounting model
Generalization hierarchies
Semantic expressiveness
Enterprise-wide conceptual schema

6. Features of REA
An extension of the conventional accounting models to include management information needs of managerial decision models and non financial measures of effectiveness.
Rea Model provides shared data access to accountant and non accountants
A generalized E-R representation of an accounting phenomena.
REA helps represent traditional accounting debit-credit phenomena.

7. REA explores the issues of database design and E-R accounting methodology, to include the concept of generalization.
REA replaces bookkeeping schemes with an accounting framework whose structure is derived with semantic modeling and whose elements correspond to the accounting principles.

8. Steps
Database design process where needs of both accountants and non accountants are serviced through shared access to centrally stored data.
- Conceptual schema, defines entities, their properties and relationships.
E-R representation of the accounting phenomena. (REA Accounting Model)

9. Database Design Process
- Requirements analysis
- View modeling
- View integration

10. REA Data Model- Elements
Economic Resources
Includes objects that are scarce and have utility
under control of an enterprise
(includes Assets except Accounts receivables)
Economic Events
a class of phenomena which reflects changes in scarce means resulting from production, exchange, consumption and distribution
Economic Agent
Includes persons and agencies who participate in the economic events or who are responsible for the subordinates participation.
- Economic Units
A subset of economic agent, are inside the economic agents- work for the economic agent or are part of the enterprise.
Control Relationship/Participant
A three way relation between an event, an insider agent (unit) and a outsider (agent).

11. Generalizing of Data
When all the generalized elements are combined the E-R framework as shown below results.

12. REA Template Give Take Economic Resource Inside Agent Economic Event
Outflow
Participant
Outside Agent
Give
Duality
Take
Outside Agent
Economic Event
Inflow
Participant
Inside Agent
Economic Resource

13. Revenue Process using REA Model
Inventory
Sales Person
Sale
Outflow
Participant
Give
Customer
Duality
Take
Cash Receipt
Inflow
Participant
Cashier
Cash

14. The relationship between customer and sales is a 1:N relationship
The relationship between customer and sales is a 1:N relationship. We make the primary key for the entity that occurs only once (customer) serve as a foreign key in the entity that can occur many times (sale).
Customer
Inventory
Sale
Employee
Cash
Receive
Cash
Customer

15. EXAMPLE Table Name Primary Key Foreign Key Other Attributes Sale
Sale No.
Customer No., Employee No.
Date of Sale, Time of Sale,
Total Amount of Sale
Receive Cash
Cash Rect. No.
Employee No., Customer No.,
Sale No.,
Account No.
Receipt Date, Receipt Time,
Total Amount of Receipt
Inventory
Item No.
Description, List Price
Cash
Bank, Type of Account
Customer
Customer No.
Customer Name, Customer
Address, Customer Phone
Employee
Employee No.
Employee Name, Employee
Address, Employee Phone,
Job Title
Sales-Inventory
Sale No.-Item
No.
Quantity Sold, Actual Price

16. Where can REA be applicable?
Labeled as an accounting system.
Can be used for various other business functions.
Supply chain collaboration
inventory control
(assigning goods to resources, transfers to events, and owners to agents.)
for payroll by assigning lengths of time to resources
(assigning time cards to events, and employees to agents.)

17. 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.

18. References
Dunn, Cheryl L, and William McCurthy. "The REA Accounting Model: Intellectual Heritage and Prospects for Progress." Michigan State Uniiversity. (accessed November 4, 2007).
McCarthy, William. "An Entity-Relationship View of Accounting Models." The Accounting Review, 1979.
McCarthy, William. "The REA Accounting Model: A Generalized Framework for Accounting Systems in a Share Data Environment." The Accounting Review, 1982.
Romney, and Steinbart. "Implementing an REA Model in a Relational Database." In Accounting Information Systems, by Romney and Steinbart. Prentice Hall Publishing, 2006.
Wikipedia. (accessed November 3, 2007).