ELLESO, KATE ANGEL V.

ACINSY
MODULE 7
DISCUSSION

1. ER diagrams usually include the link tables in the model to resolve M:M associations.
REA diagrams typically do not show the link tables. Explain.

When the modelling of a traditional ER diagram it would most often be including link
tables in its model also it can closely reflect the actual database. However, in the REA
diagram it will exclude the link tables as it will not coincide with the rule that an entity
should be connected to an only source and on at least two agent entities. Even though the
existence of link table are very important as a technical requirement for modelling the
database. But the inclusion of these said tables will disrupt the visual integrity of an REA
diagram and in understanding the conceptual model. Therefore during the implementation
the database designer must create link tables just to make database functions.

2. Why are traditional accounting events such as recording a transaction in a journal or

posting to ledgers not modeled in REA diagrams?

When it comes to taking account of accounting events, the REA diagrams would rather
focus on the value-chain activities. The value-chain activities are activities that use cash to
obtain resources of capture capital expenditure like equipment, materials and labor and
employ these resources in order to earn new revenues. Setting up account receivable and
other bookkeeping task like recording a sale would not constitute on being value-chain
activity thus those tasks are considered to be invalid entity types and should not be included
in the REA diagram. Thus, REA rejects the accounting artifacts like journal, ledgers and
double-entry system in accounting, those transactions that comprises capturing sufficient
details from transaction data that serves under the traditional accounting requirements are
then not shown in the REA diagram.

3. Describe the minimum number and types of events that an REA diagram must include.

The first step in modelling the REA diagram is the identification of event entities. As
mentioned prior, those that qualify as value-chain activities are the only ones considered as
valid entities. Entities like taking order, ship product and receiving cash are value-added
actions. Thus in an REA model it must contain a minimum of inclusion of two (2) economic
events that will constitute the give and receive activities that would lead to either a reduction
of increase in resources out of such exchange. Moreover, it can also comprise such support
events which do not directly change resources. Thus, identified events must be examined to
whether it is an economic event reflecting the give-receive concept or a supporting event.
4. Distinguish between economic events and support events and provide examples of each.

The REA approach classifies events into two which it may be and economic event or a
support event. Economic Events are phenomena that either increase or decreases directly
resources represented by stock flow relation. An example of these economic events are those
sales of products to customer which reflects the giving-receiving transaction- highly detailed
information, another example is the receipt of cash from customers and acquisition of raw
materials from vendors. On the other hand, support events are those that do not qualify as an
economic event because these do not directly affect in the changes of resources. Support
events include planning, control and other management activities that are in relation to
economic events. An example of support events can be the determination of inventory
before authorizing a sale. Another is the verification of supporting information, and checking
customer credit prior to processing a sale.

5. Explain how REA databases are able to support financial statement reporting when they
do not employ journals and ledgers.

The accounting records like journals, ledgers and the double-entry bookkeeping are
traditional mechanisms for formatting and transmitting accounting data, but these are not
employed in the REA diagram since it only captures the value-chain activities. The REA
systems would determine the essence of what accountants include by modelling the
underlying economic events directly. Organizations using REA can produce financial
statement, journals, ledged and double-entry accounting reports directly from events
identified into database tables via user views.

6. How are external and internal agents modeled in REA diagrams for transactions that
involve purely internal exchanges, such as raw material moving into production?

Economic agents comprise those individuals and department that participate in an

economic and support events. These economic agents can either be internal or external agent
who will participate in exchange. For purely internal exchanges, the role of internal and
external agents may not be so obvious The usage of REA modelling is to treat such
transaction as if these are sales. So, if the transaction is such as raw material moving into
production, the clerk giving up control and reducing the resource (raw materials) is the
internal agent and the clerk assuming control and thus increasing the resource (work-in-
progress) is the external agent.
7. Discuss the rules for linking events to resources and agents in an REA diagram.

In structuring relationships within the REA model, it prescribes rules in order to

formulate the basic pattern for how the three type of entities (resources, events and agents)
should relate to one another. Rule 1- Each event is linked to at least one resource that it
affects. For this rule there must be an effect in the quantity of resource either increasing or
decreasing quantity and relationships that affect the quantity of resource are sometimes
referred to as stockflow relationships. Rule 2- Each event is linked to at least one other
event. If events are linked with each this is called as economic duality relationship which
reflects the basic business principle that organization engage in its operations and using up its
resources and in acquiring resources through exchange. And Rule 3 suggests that each event
is linked to at 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.

8. Discuss the rules for assigning primary keys to database tables.

In determination of primary keys there must be a deep understanding In of each table’s

purpose which result from a detailed analysis in the user needs. In light with the
database designer must select a primary key that logically and uniquely identifies the non-
key attributes in a 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. Aside
from being unique in record, the record’s primary key value must not ben null and it must
exist when the record is created. It must also be stable wherein it cannot be easily changes in
the primary key fields, which means that it must be compact and contains the fewest possible
attributes.

9. Explain the relationship between cardinality and association.

Cardinality is the degree of association between entities while association is the nature of
relationship between entities. These two shows the relationship between data, 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). Cardinality reflects the
business rules that are in play for any particular firm. The association between these entities
is 1:M, and it will never be 1:1.would imply that the company limits each consumer to a
single order, which is not the case, irrational This pattern also applies to the relationship
between internal agents and event entities. Employees are expected to participate in a variety
of events over the course of their careers, not just one.
10. From the perspective of an organization, explain duality as it relates to the give and
receive events of an economic exchange.

Events that increase the quantity of resource are called “receive” event while if there is a
decrease it will entail a “give” event. When these give and receive events are linked together
this is labelled as a duality relationship. Providing sufficient side of the trade reduces
inventory resource, as indicated by the outflow association, from the perspective of the
organization function being modelled. Each accounting cycle can be described in terms of
give-to-get economic duality relationships. Not every relationship between two events
represents a give-to-get economic duality. Commitment events are linked to other events to
reflect sequential cause-effect relationships. Thus, the inflow association's economic
resources are expanded by the receive portion of the exchange.