Professional Documents
Culture Documents
Review Questions
R1. List three objectives of the sales/collection process.
Minimize the amount of time between the selection of products and services and
the collection of cash.
Minimize the amount of cash that is not collected from customers for goods and
services provided.
Structure product quality and price to balance customer value and organization
profitability.
R2. How is the sales/collection process related to the conversion process, the
acquisition payment process, and the financing process?
R3. What is the difference between a customer order and a sales order?
The difference between a customer order and a sales order is based on the
origination of the source documents and the status of an order. A customer order
is an external source document — it was created by the customer and has the
customer’s format and reference number. A sales order is an internal document
— it has an organization’s own format and internal reference number. Customer
order data is simply copied onto the sales order document. In addition, some
organizations refer to a sales order as a customer order that has been reviewed
and approved (e.g., the organization has performed a credit check and an
inventory availability check).
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The Sales/Collection Business Process
R4. Explain the difference between a sales order and a sales invoice.
A sales order document is used to record the items ordered by the customer and
the reviews and approvals of a customer order. A sales invoice document is used
to bill the customer for the items shipped. It is also used as the basis for calculating
and recording sales revenue. In a traditional accounting system, the sales invoice
is used to record the entry in the sales journal. No journal entry is made as a
result of an order.
R6. What is an open sales order? In a database designed using the REA ontology,
how can open sales orders be identified?
An open sales order is an approved customer order that has not been shipped and
billed. In a database designed using the REA ontology, open sales orders can be
identified via a query that generates a listing of all orders that have not yet been
shipped and billed. The query or queries should compare order event data to sale
event data, using the fulfillment relationship between those events to link them.
The open sales orders are those orders in the order event table that do not yet
have a corresponding record in the sale event table.
R7. What is an open sales invoice? In a database designed using the REA ontology,
how can open sales invoices be identified?
An open sales invoice is a credit sale for which there exists an amount that has not
yet been paid by the customer. In a database designed using the REA ontology,
open sales invoices can be identified via a query that generates a list of all credit
sales that have remaining unpaid balances. The query or queries should compare
sale event data to sales return event data and to customer payment event data,
using the reversal and duality relationships. The open sales invoices are those
sales in the sale event table that do not yet have corresponding records in the sale
return event table or in the cash receipt event table.
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R8. During which event should an enterprise recognize revenue for an FOB shipping
point sales transaction: Sale Order, Shipment, or Cash Receipt? Explain your
response.
FOB shipping point indicates the title to goods transferred from the seller to the
customer when the goods left the seller’s location. At this point, the seller
enterprise has completed (or virtually completed) its responsibilities in the revenue
earnings process. Therefore an enterprise should recognize revenue when the
shipment event occurs.
R9. Identify typical resources, internal agents, and external agents associated with
each of the following business events:
a. Sales call or similar instigation event.
b. Sales order or similar mutual commitment event.
c. Sale, shipment and/or service engagement or other economic decrement
event.
d. Cash receipt or other economic increment event.
e. Sale return or other economic decrement reversal event.
Specific resources, internal agents, and external agents can vary by organization.
The following is a listing of sample resources, internal agents, and external agents,
for the events listed:
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Discussion Questions
D1. Describe at least two sales/collection process information needs for each of the
following:
a. Management
b. Marketing
c. Finance and accounting
d. Human resource
e. Production
Top managers are primarily interested in summary information that relates to the
success of the sales efforts for the entire enterprise.
The marketing area has primary responsibility for establishing pricing policy, price
discounts, and credit terms. Most decisions concerning product design, styling,
packaging, and product deletion fall under the jurisdiction of marketing. Marketing
personnel also determine advertising strategy and develop advertising campaigns
to promote specific products. Development, evaluation, and administration of the
sales force are among the responsibilities of the sales and marketing area.
Sales/collection information that relates to any of these activities is relevant to
marketing.
The finance function of the enterprise must make decisions concerning the amount
of cash available for short and long-term investing and any cash needs that require
additional financing. The balance due from customers, credit terms, and terms of
payment provide vital information for making these decisions.
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The production area has the responsibility to maintain adequate stores of inventory
on hand and produce a quality product. Projected and actual sales information is
used extensively by production personnel to plan and adjust their schedules.
Feedback from customers about product quality, defects, and warranty problems is
valuable in adjusting product quality.
a. The enterprise value system level REA model in Exhibit 8-1 depicts the
enterprise providing inventory to its customers in exchange for cash and
providing cash to its suppliers in exchange for inventory. The resource OMS
provides to customers is not inventory, given that OMS never accepts legal
title to the sheet music and never physically possesses the inventory. If OMS
accepted legal title to the sheet music then even without physically
possessing the inventory OMS could be said to be exchanging cash for
inventory with its suppliers and exchanging inventory for cash with its
customers. However, with title passing directly from the suppliers to the
customers, OMS does not exchange inventory with either of those partners.
Rather OMS exchanges services for cash with its suppliers and its customers.
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b. The overall substance of the business process level pattern is the same for
OMS as for other enterprises as represented in Exhibit 8-3. Given that sheet
music is a product for which individual units of the same type are
interchangeable and especially because OMS does not take legal title to the
merchandise, OMS is unlikely to specifically identify inventory. Thus
inventory type substitutes for inventory. As discussed in part (a) inventory is
not the resource exchanged by OMS with its business partners, thus the
relationship between inventory type and sale is not a stockflow relationship.
The connection is needed for information purposes; however, it should be
named something other than stockflow. The stockflow relationship should
connect the sale event to the type of service OMS provides for each sale. If
the type of service is unimportant to track, then the stockflow relationship may
be left off. The main difference in the business process level between OMS
and the generic pattern in Exhibit 8-3 is in the labeling of some of the
resources, events, agents, and relationships.
D3. What entities and/or relationships most likely need to be included in a query to
calculate the accounts receivable balance for each customer? (Assume the
balance is not stored as a volatile derivable attribute in the customer table.)
Accounts receivable is calculated using all economic increment event entities, economic
decrement event entities, and economic reversal event entities in the sales/collection
process. To calculate accounts receivable for individual customers, the query must also
include the customer entity and the participation relationships between customer and
each of the aforementioned event entities.
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Applied Learning
A1. Quandrax Computers is a store that buys computer components for low prices, assembles
the components into computers, and then sells the computers at high prices. Each
computer is assigned a unique identification number, and computers that have common
configurations are categorized into types (e.g., Longitude is a laptop that is easily
networked and is recommended for businesses, Element is a desktop that is intended for
home and small businesses). Categories can be entered into the database before any
computers in the categories are actually assembled. The computer components are
purchased from wholesalers. One of Quandrax’s purchasing agents submits an order to
the wholesaler that has listed a given component for sale. If the order is accepted, one of
Quandrax’s inventory clerks receives the items. Multiple orders accepted by the same
supplier may be consolidated into one purchase. Orders are accepted in their entirety or
not at all. Nearly all of Quandrax’s orders are accepted. Sometimes the incorrect
components are delivered to Quandrax and Quandrax has to return them to the
appropriate supplier. Sometimes Quandrax returns components to suppliers for other
reasons, such as the result of a change in planned production of a certain category of
computers. Only about 10 percent of Quandrax’s purchased components are returned to
suppliers, and any return would result from only one purchase.
When payment is due for a purchase, one of Quandrax’s cashiers issues one check for
payment in full for the items on that purchase. Sometimes if multiple purchases have been
made from the same supplier within a short time, Quandrax pays for those purchases with
just one check. One of Quandrax’s managers is required to not only authorize all purchase
orders greater than $5,000 but also to sign all checks (including checks written for
expenditures other than purchases of computer components). Quandrax needs to keep
track of the managers’ participation in these events as well as the participation of other
employees in these events. In physically implementing the conceptual model into the
database tables, Quandrax wants to combine all employee types into just one table. This
means Quandrax would keep the separate employee entities on the E-R diagram, but
make just one employee table to represent all of the employee entities, then post keys or
make relationship tables as necessary to implement all relationships of employees to the
relevant events.
All sales are handled via mail or e-mail, as Quandrax does not have any showrooms.
Quandrax assigns salespeople to its large corporate customers and the salespeople take
sample computers to the customer locations to demonstrate features as part of their sales
calls. Only a small percentage of Quandrax’s sales calls result in orders, and sometimes a
salesperson might need to make several sales calls to the same customer to obtain one
order from that customer. Orders also result from customers surfing the Internet and
seeing descriptions of the computers on Quandrax’s website. These customers are not
assigned to specific salespeople; Quandrax only tracks the salesperson that actually took
the order. Some of Quandrax’s salespeople are hired to handle just such orders and as
such are not assigned specifically to any customers.
If a customer orders multiple computers on one sale order and some of the computers
are immediately available whereas the others are not yet assembled, Quandrax ships the
available computers right away and then ships the remainder of the order when the rest of
the computers are assembled. Sometimes Quandrax combines computers from multiple
sale orders into a single shipment. For example, once a customer ordered 10 computers
and the next day decided that wouldn’t be enough so he ordered 4 more. Quandrax
shipped all 14 computers in one shipment. Quandrax only accepts checks for its sales of
computers; customers can pay for multiple sales with a single check, but no partial
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payments are accepted. Each sale transaction is tracked by a shipment ID; an invoice is
sent to the customer that is due within 10 days, with no discounts allowed. Quandrax does
not allow any sale returns; that is, all sales are final. Cash receipts are never split between
two cash accounts; rather each receipt is assigned to one of Quandrax’s cash accounts by
one of Quandrax’s cashiers. Quandrax also receives cash from other activities, such as
loans, so the database must allow for that. Suppliers, employees, and customers need to
be entered into the database before any transactions involving them occur.
The following attributes are of interest to Quandrax. Some of them are related to the
acquisition/payment cycle and are not needed for this assignment (but we use this
scenario again in Chapter 10 and you will need them then). The attributes that are related
to the sales/collection process must be included in your solution. Do not add attributes to
the list. Use the boldface abbreviations in parentheses next to the attributes in the list. List
any assumptions you make, along with the reasons behind your assumptions (i.e., state
what you think is vague in the problem, say what you are going to assume to clear up the
ambiguity and make a case for that assumption).
Required: Create a business process level REA model (in either grammar or diagram
format) for Quandrax Computers’ sales/collection process. Be sure to include all relevant
entities, relationships, attributes, and participation cardinalities.
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SC-ID
Sc-date Sales Call (1,1) parti- (0,N)
cipate1
(0,1) (1,1)
Prop sp (1,N) fulfill- parti- (0,N)
(0,N) ment1 cipate2
propo-
sition (0,N)
Salesperson
SO-ID
Sale Order
SO-date (1,1) (0,N)
parti-
cipate3
Ord sp (1,N)
(0,N)
reser- fulfill-
(0,N) vation1 ment2 (0,N)
(1,N)
Cat-ID Computer ShipID (1,1) parti- (0,N) assign-
cipate5 ment
Cat-desc Category Sale-amt
Sale/
List-price Ship-date Shipment (0,1) (1,1)
parti-
(0,N) cipate6 parti-
Typifi- (1,1) cipate4
cation
(1,N) (0,N) (0,N)
(1,1) Customer
(0,1)
CompuID stock (0,1)
Finished flow1
Assemb Computer
date
duality1 (0,N)
ActSP
(0,N) parti- Cust-ID Cust- Cust-
cipate7 name ship
Acct# Ca-Loc AcctBal (0,1) Employee
Cash Cashier
Cash stock parti-
flow2 Receipt cipate8
(1,N) (1,1) (1,1) (0,N)
Emp-ID Emp- Emp-
name type
CR-ID Date CrAmt Cr-Chk#
Entity: Cash
Attributes: CashAcct#
Ca-Loc
AcctBal
Identifier: CashAcct#
Entity: Cash Receipt
Attributes: CR-ID
Date
CR-Amt
CR-Chk#
Identifier: CR-ID
Entity: Cashier
Attributes:
Identifier: Emp-ID
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Relationship: Participation1
Connected Entities: (1,1) Sales Call
(0,N) Customer
Relationship: Participation2
Connected Entities: (1,1) Sales Call
(0,N) Employee
Relationship: Participation3
Connected Entities: (1,1) Sale Order
(0,N) Employee
Relationship: Participation4
Connected Entities: (1,1) Sale Order
(0,N) Customer
Relationship: Participation5
Connected Entities: (1,1) Sale/Shipment
(0,N) Employee
Relationship: Participation6
Connected Entities: (1,1) Sale/Shipment
(0,N) Customer
Relationship: Participation7
Connected Entities: (0,1) Cash Receipt
(0,N) Customer
Relationship: Participation8
Connected Entities: (1,1) Cash Receipt
(0,N) Employee
Relationship: Proposition
Connected Entities: (1,N) Sales Call
(0,N) Computer Category
Attributes: Prop-sp
Relationship: Reservation
Connected Entities: (1,N) Sale Order
(0,N) Computer Category
Attributes: Ord-sp
Relationship: Stockflow1
Connected Entities: (1,N) Sale
(0,1) Finished Computer
Relationship: Stockflow2
Connected Entities: (1,N) Cash
(1,1) Cash Receipt
Relationship: Typification
Connected Entities: (1,1) Finished Computer
(0,N) Computer Category
Review Questions
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The Sales/Collection Business Process
R2. How is the acquisition/payment process related to the conversion process, the
sales/collection process, the human resource process, and the financing process?
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R3. What is the difference between a purchase requisition and a purchase order?
An open purchase order is a purchase order that has been sent to a vendor but
has not yet been filled (i.e., goods and services have not yet been received).
R5. Which is the most appropriate time to record a purchase and the corresponding
liability: upon the receipt of goods or upon the receipt of a vendor’s invoice?
Explain your response.
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R6. Identify the resources, internal agents, and external agents associated with each of
the following business events:
a. Purchase requisition (instigation) event.
b. Purchase order for goods/services (mutual commitment) event.
c. Receipt of goods/services (economic increment) event.
d. Cash disbursement (economic decrement) event.
e. Purchase return (economic increment reversal) event.
Specific resources, internal agents, and external agents can vary by organization,
thus the following is a listing of sample resources, internal agents, and external
agents for the events listed:
R7. Which relationships should you examine if you want to create a query to calculate
accounts payable?
The query or queries should compare purchase event data to purchase return
event data and to cash disbursements for purchases, using the reversal and
duality relationships.
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Typically a purchase requisition is an internal event and does not require any
participation from an external agent. However, an enterprise may create a
participation relationship between purchase requisition and vendor in its
database in order to track supplier recommendations that are made as part of the
requisitions.
R9. Do most companies keep track of operating assets (e.g. property and equipment)
at the individual instance level or at the type level? Why?
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Discussion Questions
D1. The tables in Exhibit 9-18 do not portray the design for storage of acquisitions of
resources other than inventory (e.g. operating assets or general and administrative
service types). If the enterprise determined that the attributes that need to be
stored for operating asset acquisitions are the acquisition ID, date, and dollar total
(and foreign keys from related cash disbursements, suppliers, and receiving clerks)
what design alternatives should the enterprise consider for storing the operating
asset acquisition information?
One alternative is to combine operating asset and g&a service type acquisitions
with inventory acquisitions, i.e., to add records to the existing purchase tables
(and similarly to the requisition and order tables). Because operating assets
have different attributes from inventory type (this is also likely true of g&a service
types) and are stored in a separate entity table, separate proposition,
reservation, and stockflow relationships need to be established and represented
appropriately in the tables (most likely with separate tables for each relationship).
Such an approach should typically be taken when the same attributes are
captured for requisitions, orders, and purchases of inventory types, operating
assets, or g&a service types. If different attributes are captured for the various
events, then separate instances of the acquisition cycle pattern must be
implemented for each different type of resource. The tables for inventory type
acquisition would be as reflected in Exhibit 9-18 in the textbook. Exhibit 9-4 in
the textbook portrays an instance of the acquisition cycle pattern for operating
assets. Additional tables would need to be added to Exhibit 9-18 for any entities
and some relationships (per cardinality-based table conversion rules) included in
Exhibit 9-4 that were already included in the tables. For example, additional
tables are likely needed to represent operating asset requisition, proposition
relationship between operating asset and requisition, operating asset order,
reservation relationship between operating asset and order, operating asset
purchase (receipt of asset), stockflow relationship between operating asset and
purchase), operating asset returns, stockflow relationship between operating
asset return and operating asset, and to represent the fulfillment, duality, and
reversal relationships. A similar pattern would need to be created for g&a service
types and the additional tables determined.
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D2. Describe at least two acquisition/payment process information needs for each of
the following:
f. Management
g. Marketing
h. Finance and accounting
i. Human resource
j. Production
d. Human resource needs information about the quantity and quality of work
performed by acquisition/payment process personnel. Information such as
number of hours worked and quantity of requisitions or other events processed
in a given time period are useful for human resource decision-making.
e. The resources purchased for use in the conversion process provide the basis
for many of the decisions for which production needs information about the
acquisition/payment process activities. Raw materials and operating assets
are purchased in the acquisition/payment process for use in production. Among
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D3. What entities and/or relationships most likely need to be included in a query to
An unfilled purchase order is a purchase order for which goods or services have
not yet been received. In a database designed using the REA ontology, unfilled
purchase orders can be identified via a query that generates a listing of all orders
for which goods have not yet been received. The query or queries should compare
purchase order event data to purchase event data, using the fulfillment relationship
between those events to link them. The query or queries should also include the
purchasing agent entity and the participation relationship between purchase order
and purchasing agent, to be able to portray the orders for each purchasing agent.
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Applied Learning
A1. Quandrax Computers is a store that buys computer components for low prices,
assembles the components into computers, and then sells the computers at high
prices. Each computer is assigned a unique identification number, and computers
that have common configurations are categorized into types (e.g. Longitude is a
laptop that is easily networked and is recommended for businesses, Element is a
desktop that is intended for home and small businesses). Categories can be
entered into the database before any computers in the categories are actually
assembled. The computer components are purchased from wholesalers. One of
Quandrax’s purchasing agents submits an order to the wholesaler that has listed a
given component for sale. If the order is accepted, one of Quandrax’s inventory
clerks receives the items. Multiple orders accepted by the same supplier may be
consolidated into one purchase. Orders are accepted in their entirety or not at all.
Nearly all of Quandrax’s orders are accepted. Sometimes the incorrect components
are delivered to Quandrax and Quandrax has to return them to the appropriate
supplier. Sometimes Quandrax returns components to suppliers for other reasons,
such as the result of a change in planned production of a certain category of
computers. Only about 10 percent of Quandrax’s purchased components are
returned to suppliers, and any return would result from only one purchase.
When payment is due for a purchase, one of Quandrax’s cashiers issues one
check for payment in full for the items on that purchase. Sometimes if multiple
purchases have been made from the same supplier within a short time, Quandrax
pays for those purchases with just one check. One of Quandrax’s managers is
required to not only authorize all purchase orders greater than $5,000 but also to
sign all checks (including checks written for expenditures other than purchases of
computer components). Quandrax needs to keep track of the managers’
participation in these events as well as the participation of other employees in these
events. In physically implementing the conceptual model into the database tables,
Quandrax wants to combine all employee types into just one table. This means
Quandrax would keep the separate employee entities on the E-R diagram, but make
just one employee table to represent all of the employee entities, then post keys or
make relationship tables as necessary to implement all relationships of employees
to the relevant events.
All sales are handled via mail or e-mail, as Quandrax does not have any
showrooms. Quandrax assigns salespeople to its large corporate customers and
the salespeople take sample computers to the customer locations to demonstrate
features as part of their sales calls. Only a small percentage of Quandrax’s sales
calls result in orders, and sometimes a salesperson might need to make several
sales calls to the same customer to obtain one order from that customer. Orders
also result from customers surfing the Internet and seeing descriptions of the
computers on Quandrax’s website. These customers are not assigned to specific
salespeople; Quandrax only tracks the salesperson that actually took the order.
Some of Quandrax’s salespeople are hired to handle just such orders and as such
are not assigned specifically to any customers.
If a customer orders multiple computers on one sale order and some of the
computers are immediately available whereas the others are not yet assembled,
Quandrax ships the available computers right away and then ships the remainder of
the order when the rest of the computers are assembled. Sometimes Quandrax
combines computers from multiple sale orders into a single shipment. For example,
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The Sales/Collection Business Process
once a customer ordered 10 computers and the next day decided that wouldn’t be
enough so he ordered 4 more. Quandrax shipped all 14 computers in one shipment.
Quandrax only accepts checks for its sales of computers; customers can pay for
multiple sales with a single check, but no partial payments are accepted. Each sale
transaction is tracked by a shipment ID; an invoice is sent to the customer that is
due within 10 days, with no discounts allowed. Quandrax does not allow any sale
returns, that is, all sales are final. Cash receipts are never split between two cash
accounts; rather each receipt is assigned to one of Quandrax’s cash accounts by
one of Quandrax’s cashiers. Quandrax also receives cash from other activities such
as loans, so the database must allow for that. Suppliers, employees, and
customers need to be entered into the database before any transactions involving
them occur.
The following attributes are of interest to Quandrax; some are related to the
sales/collection cycle. The attributes that are related to the acquisition/payment
process must be included in your solution. Do not add attributes to the list. Use the
boldface attribute abbreviations in parentheses next to the attributes in the list. List
any assumptions you make, along with the reasons behind your assumptions (i.e.,
state what you think is vague in the problem, say what you are going to assume to
clear up the ambiguity, and make a case for that assumption).
Required:
Create a business process level REA model (in either grammar or diagram format) for
Solutions Manual to accompany Dunn, Enterprise Information Systems: A Pattern Based Approach, 3e 123
The Sales/Collection Business Process
Purchasing
(0,N) Agent
(1,1) parti-
cipate1
PO-ID Manager
Purchase
PO-date (0,1) (0,N)
Order parti-
cipate2
Ord-
unitcost (1,N) (0,1)
Qty-ord reser- fufill-
vation ment1
(0,N) (1,N)
RR# (1,1) parti- (0,N) Inventory
CompoID
Component date
Purchase cipate4 Clerk
descrip Inventory
stdcost stock parti- (1,1)
flow1 (1,1) cipate5 parti-
(0,N) (1,N) cipate3
(0,N) Qty-rec (0,N)
Unit-cost Wholesaler (0,N)
(0,1)
duality (0,N)
(1,1)
Purchase (0,?) (1,1) Wholesaler
P-PR parti-
cipate10
(0,N)
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Relationship: Duality
Connected Entities: (0,1) Purchase
(0,N) Cash Disbursement
Relationship: Fulfillment1
Connected Entities: (0,1) Purchase Order
(1,N) Purchase
Relationship: P-PR (alternative to duality?)
Connected Entities: (0,?) Purchase
(1,1) Purchase Return
Relationship: Generalization
Connected Entities: Purchasing Agent
Employee
Connected Entities: Cashier
Employee
Connected Entities: Manager
Employee
Connected Entities: Inventory Clerk
Employee
Relationship: Participation1
Connected Entities: (1,1) Purchase Order
(0,N) Purchasing Agent
Relationship: Participation2
Connected Entities: (0,1) Purchase Order
(0,N) Manager
Relationship: Participation3
Connected Entities: (1,1) Purchase Order
(0,N) Wholesaler
Relationship: Participation4
Connected Entities: (1,1) Purchase
(0,N) Inventory Clerk
Relationship: Participation5
Connected Entities: (1,1) Purchase
(0,N) Wholesaler
Relationship: Participation6
Connected Entities: (0,1) Cash Disbursement
(0,N) Wholesaler
Relationship: Participation7
Connected Entities: (1,1) Cash Disbursement
(0,N) Cashier
Relationship: Participation8
Connected Entities: (1,1) Cash Disbursement
(0,N) Manager
Relationship: Participation9
Connected Entities: (1,1) Purchase Return
(0,N) Inventory Clerk
Relationship: Participation10
Connected Entities: (1,1) Purchase Return
(0,N) Wholesaler
Relationship: Reservation
Connected Entities: (1,N) Purchase Order
(0,N) Component Inventory
Attributes: Ord-unit-cost
Qty-ord
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Relationship: Stockflow1
Connected Entities: (1,N) Purchase
(0,N) Component Inventory
Attributes: Item-unit-cost
Qty-rec
Relationship: Stockflow2
Connected Entities: (0,N) Cash
(1,1) Cash Disbursement
Review Questions
R1. What three basic steps are involved in view integration?
R2. What are two types of entity name conflicts that must be resolved when identifying
common entities in multiple business process conceptual models?
Two types of entity name conflicts include synonyms and homonyms. Synonyms
are different labels (with equivalent meaning) used to represent the same entity.
A homonym is a single label (with alternative meanings) used to represent
different entities.
Attribute conflict exists if different attributes have been identified as important for
describing the same entity in various views. All necessary attributes of an entity
set needed for all business processes in which that entity set occurs should be
included in an enterprise-wide database. Attribute conflict is resolved by
performing a set union of the attributes needed for the different cycles.
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3. Materialization of tasks as event entities. Done when tasks are deemed sufficiently
important to track separately from the events they comprise; not recommended, as it
increases model complexity and results in a database design that must be changed if
task workflow changes.
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R7. Explain what aspects of view integration may be easier with the ER grammar
format than with the ER diagram format.
The ER grammar format has several advantages over the diagram format in view
integration. Reorganization of the physical diagram layout is not an issue, and
copies of entities become unnecessary, as entities and relationships are simply
alphabetized and each relationship that contains an entity as one of its
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connected entities refers back to the same entity in the alphabetized list. Of
course the steps involving identification of common entities, resolution of entity
conflicts, resolution of attribute conflicts, and resolution of relationship conflicts
are still necessary and the grammar does not necessarily provide any advantage
over the diagram format. Although overall view integration is facilitated by the ER
grammar format, the diagram format facilitates other tasks. Therefore we are not
recommending one format versus the other; we are merely identifying possible
strengths of each format.
A diagonal slash is placed through the bottom right corner of the entity’s
rectangle and the attributes are removed from the entity.
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Discussion Questions
D1. An enterprise’s financing cycle model includes a cash entity with the attributes,
cash account number, account type, and account balance. The same enterprise’s
payroll cycle model includes a cash entity with the attributes, cash account id, cash
account type, and cash account location.
a. If the enterprise integrates the financing and payroll views, how many cash
entities should the integrated view include?
b. What attributes should the integrated model include for the cash entities?
c. What questions do you need to ask (or what assumptions do you need to
make) to determine the answer to question (b)?
D2. Examine the relational database tables in Exhibit 10-9. Compare them to the
relational database tables in Exhibits 8-20 and 9-18 from Chapters 8 and 9. What
difference do you notice that could be considered an implementation compromise?
Exhibits 8-20 and 9-18 included a separate table for each type of employee, e.g.
shipping clerk, salesperson, accounts payable clerk, and so on. Exhibit 10-9 combines
all employee records into a single employee table. This is a combination of entity sets
without generalization, a logical level implementation compromise.
D3. A relationship between cash receipt and customer for an enterprise has
cardinalities (0,1) cash receipt – (0,N) customer. The enterprise creates a cash
receipt table and a customer table to represent the entities. To represent the
relationship, the enterprise posts the primary key of the customer entity table into
the cash receipt entity table. Why is this considered an implementation
compromise, and at what level (conceptual, logical, or physical) is it an
implementation compromise?
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receipt could exist without a related customer. Therefore the values for some
customer identifiers posted into the cash receipt table would be null. The
enterprise should have made the decision to post this foreign key based on it
having a high load. It is considered a logical level implementation compromise.
D4. Why might a company decide to roll up its cash disbursement event
activity? Is this an implementation compromise? If so, does the compromise
occur at the conceptual, logical, or physical level?
Left uncompromised, an enterprise database is likely to quickly grow too large for
optimized, proficient querying. A company may decided to roll up its cash
disbursement event activity to reduce the size of the database and increase the
efficiency of those queries for which cash disbursements are relevant. This
should only be done, of course, if the rolled up data is no longer needed in
disaggregate form. This is considered a compromise because the pure relational
model requires all data to be maintained in a database in its most disaggregate
form. This is a physical level implementation compromise.
D5. Glorious Bea Enterprises (GBE) receives cash from various external
business partners, including investors, creditors, customers, and suppliers. GBE
wants to store information about all external business partners in a single
database table. Describe the conceptual, logical, and physical level
implementation compromises GBE needs to make.
At the conceptual level, GBE should not make any compromise. The conceptual
model should reflect the various external business partners related to the
appropriate events, resources, or other agents. Although GBE could consolidate
these entities into a single entity called External Partner, reality will be better
reflected if they are left separate in the model. The compromise to create just one
table in which to store data regarding all these agent entities is a logical level
compromise. To make the conceptual model consistent with the logical model,
the designer should add the label External Partner to the entity names in the
conceptual model, e.g. External Partner – Investor, External Partner – Creditor,
External Partner – Customer, and External Partner – Supplier. This re-labeling is
not a compromise, it is simply good form to clarify the consistency between the
conceptual and logical levels. No physical level implementation compromise is
needed to combine the external business partner data into a single database
table.
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Applied Learning
A1. Quandrax Computers is a store that buys computer components for low prices,
assembles the components into computers, and then sells the computers at high
prices. Each computer is assigned a unique identification number, and computers
that have common configurations are categorized into types (e.g. Longitude is a
laptop that is easily networked and is recommended for businesses, Element is a
desktop that is intended for home and small businesses, etc.). Categories can be
entered into the database before any computers in the categories are actually
assembled. The computer components are purchased from wholesalers. One of
Quandrax’s purchasing agents submits an order to the wholesaler that has listed a
given component for sale. If the order is accepted, one of Quandrax’s inventory
clerks receives the item(s). Multiple orders accepted by the same supplier may be
consolidated into one purchase. Orders are accepted in their entirety or not at all.
Nearly all of Quandrax’s orders are accepted. Sometimes the incorrect components
are delivered to Quandrax and Quandrax has to return them to the appropriate
supplier. Sometimes Quandrax returns components to suppliers for other reasons
(e.g. as the result of a change in planned production of a certain category of
computers). Only about 10% of Quandrax’s purchased components are returned to
suppliers, and any return would result from only one purchase.
When payment is due for a purchase, one of Quandrax’s cashiers issues one check
for payment in full for the item(s) on that purchase. Sometimes if multiple
purchases have been made from the same supplier within a short period of time,
Quandrax will pay for those purchases with just one check. One of Quandrax’s
managers is required to authorize all purchase orders greater than $5,000 and is
also required to sign all checks (including checks written for expenditures other
than purchases of computer components). Quandrax needs to keep track of the
managers’ participation in these events as well as the participation of other
employees in these events. In physically implementing the conceptual model into
the database tables, Quandrax wants to combine all employee types into just one
table (i.e., keep the separate employee entities on the E-R diagram, but just make
one employee table to represent all of the employee entities, then post keys or make
relationship tables as necessary to implement all relationships of employees to the
relevant events).
All sales are handled via mail or e-mail, as Quandrax does not have any
showrooms. Quandrax assigns salespeople to its large corporate customers and
the salespeople take sample computers to the customer locations to demonstrate
features as part of their sales calls. Only a small percentage of Quandrax’s sales
calls result in orders, and sometimes a salesperson might need to make several
sales calls to the same customer to obtain one order from that customer. Orders
also result from customers surfing the Internet and seeing descriptions of the
computers on Quandrax’s web site. These customers are not assigned to specific
salespeople; Quandrax only tracks the salesperson that actually took the order.
Some of Quandrax’s salespeople are hired just to handle such orders and as such
are not assigned specifically to any customers.
If a customer orders multiple computers on one sale order and some of the
computers are immediately available whereas the others are not yet assembled,
Quandrax will ship the available computers right away and then ship the remainder
of the order when the rest of the computers are assembled. Sometimes Quandrax
combines computers from multiple sale orders into a single shipment. For example,
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once a customer ordered 10 computers and the next day decided that wouldn’t be
enough so he ordered 4 more. Quandrax shipped all 14 computers in one shipment.
Quandrax only accepts checks for its sales of computers; customers can pay for
multiple sales with a single check, but no partial payments are accepted. Each sale
transaction is tracked by a shipment ID; an invoice is sent to the customer that is
due within 10 days, with no discounts allowed. Quandrax does not allow any sale
returns, i.e., all sales are final. Cash receipts are never split between two cash
accounts; rather each receipt is assigned to one of Quandrax’s cash accounts by
one of Quandrax’s cashiers. Quandrax also receives cash from other activities (e.g.
loans), so the database must allow for that. Suppliers, employees, and customers
need to be entered into the database before any transactions involving them occur.
The following attributes are of interest to Quandrax. Some of them are related to
the acquisition/payment cycle and are not needed for this homework assignment
(but we will use this scenario again in chapter 10 and will need them then). The
attributes that are related to the sales/collection process must be included in your
solution. Do not add attributes to the list. You may abbreviate the attributes using
the abbreviations given in bold in parentheses next to the attributes in the list. List
any assumptions you make, along with your reasons behind your assumptions (i.e.
state what you think is vague in the problem, say what you are going to assume in
order to clear up the ambiguity and make a case for that assumption).
Required:
a. Create a business process level REA model (in either grammar or diagram
format) for Quandrax Computers’ sales/collection process. Be sure to include
all relevant entities, relationships, attributes, and participation cardinalities. (If
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you completed applied learning problem 8-1 you may use the solution you
already created for that problem).
b. Create a business process level REA model (in either grammar or diagram
format) for Quandrax Computers’ acquisition/payment process. Be sure to
include all relevant entities, relationships, attributes, and participation
cardinalities. (If you completed applied learning problem 9-1 you may use the
solution you already created for that problem).
c. Integrate the views created in steps (a) and (b) above into a single conceptual
model.
d. Convert the conceptual model into a logical set of relational database tables.
e. Identify implementation compromises (if any) made at the conceptual and
logical levels.
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Entity: Cash
Attributes: CashAcct#
Ca-Loc
AcctBal
Identifier: CashAcct#
Entity: Cash Disbursement
Attributes: CD#
Date
CD-Amt
Identifier: CD#
Entity: Cash Receipt
Attributes: CR-ID
Date
CR-Amt
CR-Chk#
Identifier: CR-ID
Entity: Cashier
Attributes:
Identifier: Emp-ID
Entity: Component Inventory
Attributes: Compo-ID
Description
Standard-cost
Identifier: Cat-ID
Entity: Computer Category
Attributes: Cat-ID
Cat-desc
List-price
Identifier: Cat-ID
Entity: Customer
Attributes: CustID
Cust-Name
Cust-Ship
Identifier: CustID
Entity: Employee
Attributes: EmpID
Emp-Name
Emp-Type
Identifier: EmpID
Entity: Finished Computer
Attributes: CompuID
AssembDate
ActSP
Identifier: CompuID
Entity: Inventory Clerk
Attributes:
Identifier: EmpID
Entity: Manager
Attributes:
Identifier: Emp-ID
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Entity: Purchase
Attributes: RR#
Date
Identifier: RR#
Entity: Purchase Order
Attributes: PO-ID
PO-Date
Identifier: PO-ID
Entity: Purchase Return
Attributes: PR-ID
PR-Date
Identifier: PR-ID
Entity: Purchasing Agent
Attributes:
Identifier: Emp-ID
Entity: Sale/Shipment
Attributes: ShipID
Ship-Date
Sale-Amt
Identifier: ShipID
Entity: Sale Order
Attributes: SO-ID
SO-Date
Identifier: SO-ID
Entity: Sales Call
Attributes: SC-ID
SC-Date
Identifier: SC-ID
Entity: Salesperson
Attributes:
Identifier: Emp-ID
Entity: Wholesaler
Attributes: SupID
Name
Type
Identifier: SupID
Relationship: Assignment
Connected Entities: (0,1) Customer
(0,N) Employee
Relationship: Duality
Connected Entities: (0,1) Sale/Shipment
(0,N) CashReceipt
Relationship: Duality2
Connected Entities: (0,1) Purchase
(0,N) Cash Disbursement
Relationship: Fulfillment1
Connected Entities: (0,N) Sale Order
(0,1) Sales Call
Relationship: Fulfillment2
Connected Entities: (1,N) Sale
(0,N) Sale Order
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Relationship: Fulfillment3
Connected Entities: (0,1) Purchase Order
(1,N) Purchase
Relationship: Generalization
Connected Entities: Salesperson
Employee
Connected Entities: Cashier
Employee
Connected Entities: Purchasing Agent
Employee
Connected Entities: Cashier
Employee
Connected Entities: Manager
Employee
Connected Entities: Inventory Clerk
Employee
Relationship: Participation1
Connected Entities: (1,1) Sales Call
(0,N) Customer
Relationship: Participation2
Connected Entities: (1,1) Sales Call
(0,N) Employee
Relationship: Participation3
Connected Entities: (1,1) Sale Order
(0,N) Employee
Relationship: Participation4
Connected Entities: (1,1) Sale Order
(0,N) Customer
Relationship: Participation5
Connected Entities: (1,1) Sale/Shipment
(0,N) Employee
Relationship: Participation6
Connected Entities: (1,1) Sale/Shipment
(0,N) Customer
Relationship: Participation7
Connected Entities: (0,1) Cash Receipt
(0,N) Customer
Relationship: Participation8
Connected Entities: (1,1) Cash Receipt
(0,N) Employee
Relationship: Participation9
Connected Entities: (1,1) Purchase Order
(0,N) Purchasing Agent
Relationship: Participation10
Connected Entities: (0,1) Purchase Order
(0,N) Manager
Relationship: Participation11
Connected Entities: (1,1) Purchase Order
(0,N) Wholesaler
Relationship: Participation12
Connected Entities: (1,1) Purchase
(0,N) Inventory Clerk
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Relationship: Participation13
Connected Entities: (1,1) Purchase
(0,N) Wholesaler
Relationship: Participation14
Connected Entities: (0,1) Cash Disbursement
(0,N) Wholesaler
Relationship: Participation15
Connected Entities: (1,1) Cash Disbursement
(0,N) Cashier
Relationship: Participation16
Connected Entities: (1,1) Cash Disbursement
(0,N) Manager
Relationship: Participation17
Connected Entities: (1,1) Purchase Return
(0,N) Inventory Clerk
Relationship: Participation18
Connected Entities: (1,1) Purchase Return
(0,N) Wholesaler
Relationship: Proposition
Connected Entities: (1,N) Sales Call
(0,N) Computer Category
Attributes: Prop-sp
Relationship: Reservation
Connected Entities: (1,N) Sale Order
(0,N) Computer Category
Attributes: Ord-sp
Relationship: Reservation2
Connected Entities: (1,N) Purchase Order
(0,N) Component Inventory
Attributes: Ord-unit-cost
Qty-ord
Relationship: Reversal
Connected Entities: (0,?) Purchase
(1,1) Purchase Return
Relationship: Stockflow1
Connected Entities: (1,N) Sale
(0,1) Finished Computer
Relationship: Stockflow2
Connected Entities: (1,N) Cash
(1,1) Cash Receipt
Relationship: Stockflow3
Connected Entities: (1,N) Purchase
(0,N) Component Inventory
Attributes: Item-unit-cost
Qty-rec
Relationship: Stockflow4
Connected Entities: (0,N) Cash
(1,1) Cash Disbursement
Relationship: Typification
Connected Entities: (1,1) Finished Computer
(0,N) Computer Category
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Note: Rather than re-drawing both diagrams into one merged diagram, it is acceptable to identify the
common entities (cash, employee, and cashier in this example), verify that attributes on cash,
employee, and cashier are same in both cycles, then remove attributes from cash, employee, and
cashier and add slashes through the bottom right corner of those entities on the second diagram. Re-
label relationships on the second diagram so that all are unique across both diagrams, as follows:
Purchasing
Agent
(0,N)
(1,1) parti-
cipate9
duality2 (0,N)
(1,1)
Purchase (0,?) (1,1) Wholesaler
reversal parti-
cipate18
(0,N)
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Cash
Acct# Ca-Loc AcctBal
Cash Disbursement
CD# Date CdAmt Csr-EmpID* Mgr-EmpID* Cash-Acct#*
Cash Receipt
CR-ID Cr-Date Cr-amt Cr-Chk# Cust-ID* EmpID* Cash-Acct#*
Component Inventory
Compo-ID Description Std Cost
Computer Category
Cat-ID Cat-desc List-price
Customer
Cust-ID Cust-name Cust-ship
Employee
EmpID Emp-name Emp-type
Finished Computer
CompuID Assemb-date Act-sp Cat-ID* Ship-ID*
Purchase
RR# Date IC-EmpID* SupID* CD#*
Purchase Order
PO-ID Date PA-EmpID* Sup-ID* RR#*
Purchase Return
PR-ID Date IC-Emp#* RR#* SupID*
Sale/Shipment
ShipID Sale-amt Sale-date EmpID* CustID* CR-ID*
Sales Call
SC-ID SC-date EmpID* Cust-ID*
Sale Order
SO-ID SO-date EmpID* CustID*
Wholesaler
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Proposition
SC-ID Cat-ID Prop-sp
Reservation
SO-ID Cat-ID Order-sp
Reservation2
PO-ID Compo-ID Ord-unit-cost Qty-ord
Fulfillment1
SC-ID SO-ID
Fulfillment2
SO-ID Ship-ID
Assignment
Emp-ID Cust-ID
Stockflow3
RR# Compo-ID Item-unit-cost Qty-rec
Stockflow5
PR-ID Compo-ID
Participate10
PO-ID Mgr-ID
Participate14
CD# Sup-ID
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Review Questions
R1. What is the difference between a materials requisition and a purchase requisition?
R3. How is the conversion process related to the financing process, the human
resource process, the acquisition/payment process, and the sales/collection
process?
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R4. Identify the resources and agents associated with each of the following events in
the conversion process:
a. Materials Requisition (Commitment to Decrement)
b. Materials Issuance (Economic Decrement)
c. Labor Operation (Economic Decrement)
d. Machine Operation (Economic Decrement)
e. Production Order (Commitment to Increment)
f. Production Run (Economic Increment)
R5. Describe the information needed by each of the following in performing their role in
the conversion process.
a. Management
b. Payroll
c. Accounting
d. Personnel
a. Top management is concerned with summary data that reflects the overall
success of the conversion process. The efficiency and effectiveness of the
production process often determines success. Examples of information requests
from management include
• Number of units produced and the cost per unit this period compared with
prior periods.
• Percentage of defective units, reasons for the defects, and what is necessary
to prevent future defects.
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d. Conversion process activities also affect the decisions and information needs of
the personnel process. The human resource function of the organization needs
information about open job positions, job descriptions, and skill requirements to
have the needed people available and properly trained. They also need
information regarding employee performance as compared to standards to
make termination decisions or to identify needs for further employee training.
R6. On which relationship in the conversion process would you base a query to
calculate the time taken for a machine operation as a percentage of a complete
production run?
R7. What entities and/or relationships should you consider when creating a query to
identify the quantity of each ingredient that was decreased by an ingredient
issuance?
The entities that should be considered in creating this query include the entities
ingredient and ingredient issuance, and the stockflow relationship between those
entities.
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Discussion Questions
D1. How is the business process level pattern for the conversion cycle similar to the
business process pattern for the revenue cycle? How are the two patterns
different?
The basic patterns for the conversion and revenue cycles are similar. Both
include resources, economic increment events, economic decrement events,
commitment events, agents, duality relationships, stockflow relationships,
fulfillment relationships, reservation relationships, and participation relationships.
The primary difference is the nature of the duality relationships. In the revenue
cycle, the duality relationship is a transfer, an exchange of one or more
resources for another resource. In the conversion cycle, the duality relationship is
a transformation, the changing of one or more resources into another resource.
Another difference is that the revenue cycle includes external agents whereas
the conversion process involves only internal agents.
D2. Explain the most likely points of integration between the acquisition/payment cycle
and the conversion cycle business process level models.
D3. Respond to the following statement as to whether you agree or disagree and
explain why.
“The conversion cycle business process level model for a company that crochets
baby clothes would look very different from the conversion cycle business process
level model for an automobile manufacturer, because obviously the steps and
activities needed to produce baby clothes are very different from the steps and
activities needed to produce automobiles.”
Although the finished products – crocheted baby clothes and automobiles – are
very different in nature, the REA business process level model for the two
different types of manufacturers would be similar. The specific workflow activities
may differ between the two manufacturing processes; however, both will include
production orders, production runs, materials issuances, labor operations, and
machine operations. The nature of the materials used in the processes will differ,
but the information stored about them is likely to be similar. The automobile
manufacturing process will likely need more detailed information because of
safety and liability issues. The baby clothes manufacturer will likely have more
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labor operations and the automobile manufacturer will likely have more machine
operations. However, this will primarily affect the number of records in the labor
operation and machine operation tables in the two databases.
D4. Respond to the following statement as to whether you agree or disagree and
explain why.
“We can’t use the REA pattern to model the business process level for the
conversion cycle because it doesn’t involve any exchanges with external agents.”
The REA pattern does not require the inclusion of external agents if none are
involved in a process; it merely requires us to include them if they are involved.
What is more important than the distinction between agents as internal and
external is the role played by each as initiators/authorizers, and performers of the
events. For example, in the conversion process the production supervisor
authorizes the production run and the production employees perform the
production run. In the sales/collection process, the customer authorizes the cash
receipt event and the cashier performs it.
D5. Why are labor operations and labor types often tracked in the conversion process
but usually not tracked in the revenue process?
Labor operations and the labor types used up by those operations are typically
tracked in the conversion process because they represent a significant portion of
product costs and the value added by the conversion process. In the revenue
process, labor is typically insignificant compared to inventory costs. The
exception is if the revenue process involves the performance of services rather
than the sale of goods, in which case labor operations and labor types would
usually be tracked.
D6. How will the relational database table design differ for a company whose
production run involves 10 distinct steps versus a company whose production run
involves 35 distinct steps?
The table design will not differ. The volume of data in the tables will differ; for the
same number of production run events, the company whose production run
involves 35 distinct steps will need to record more records than will the company
whose production run involves only 10 steps.
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D7. Consider the database tables in Exhibit 11-15. Describe the necessary procedures to
construct one or more queries to determine what quantity (and unit of measure) of each
ingredient Lucy requisitioned.
Join the ingredient requisition table to the supervisor table to isolate those
requisitions made by Lucy. Join the result to the reservation table, group by
ingredient ID, sum the quantity reserved and include the unit of measure in the
solution.
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Applied Learning
A1. Marvelous Industries (MI) is a company that creates specialty plaques to
and victorious athletic teams’ seasons. Most of its business centers on victorious athletic
teams’ seasons at all levels, from professional and college all the way down to preschool.
Some of the plaques it creates are requested by customers and are tailored to customer
specifications (especially the smaller quantities needed for preschool through high school
teams or occasions); most plaques are made to stock and apply to collegiate and
Florida State University’s 1999 football national championship. One plaque featured an
image of Peter Warrick reaching to grab a pass in the end zone that was a key touchdown
in the championship game. Another plaque featured an image of Coach Bobby Bowden
raising the championship trophy in triumph and also included the team schedule and score
summary. There were several other styles that included images in various themes such as
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all three phases. Each phase is primarily manual; although hand tools are
used, their cost is so immaterial that their consumption is not tracked.
Also, MI wants to track what type of labor is involved for each work in
progress job (e.g. stain plaque, paint plaque, cut matting material, mount
print, and so on), but does not want to track individual labor operations. In
phase one, a plaque preparation supervisor requisitions unfinished
plaques from the warehouse to be used in a staining or painting job. An
inventory clerk processes the requisition and issues the plaques to the
staining or painting job where they are received by the preparation
supervisor. The preparation supervisor also requisitions stain and/or paint
and these requisitions are processed in the same manner as the unfinished
plaque requisitions. The plaques are stained or painted in a color that is
appropriate to the theme of the plaque being created in that particular job.
Each job consists of the production of multiple copies of the same plaque
design. Usually the stain or paint for an athletic team is one of the team
colors. For FSU’s championship season many of the plaques were stained
with the color garnet; others were painted gold. A preparation supervisor
issues the prepared plaques to an assembly supervisor, who receives them
into an assembly job. An assembly supervisor requisitions images and
any matting and mounting materials needed for the plaque style from the
warehouse to be used in the assembly job. An inventory clerk processes
the requisition and issues the requested materials to the assembly job
where they are received by the assembly supervisor. Assembly production
employees complete the assembly job and upon completion an assembly
supervisor issues the assembled plaques to a finishing supervisor who
receives them into a finishing job. A finishing supervisor requisitions
finishing varnish to be used in the finishing job. An inventory clerk
processes the requisition and issues the finishing varnish to the finishing
job where it is received by the finishing supervisor. Finishing production
employees complete the finishing job, after which the finished plaques are
transferred to the sales warehouse.
Required:
a. Create a partial value chain that illustrates each of the three phases of the
conversion process as if they are separate cycles (i.e., include a separate
circle with duality-linked events in it for each phase and illustrate all
resource inputs and outputs). For resources that come from or go to
other processes (such as acquisition and sales cycles) draw an arrow in
the appropriate direction, label it with the resource name, and note which
cycle is its source or destination.
b. Create a business process level REA diagram in entity-relationship format for
the preparation phase. Please be sure to label all entities and all relationships,
and assign attributes to the entities and relationships from the following list.
c. Create a business process level REA diagram in entity-relationship format for
the finishing phase. Please be sure to label all entities and all relationships,
and assign attributes to the entities and relationships from the following list.
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Stain/Paint
(from Acquisition process)
Labor (from Payroll
Assembly Phase (2)
Issue
Process) Prepared
Plaques
Images Assembly Job
(from Acquisition process) Labor
Operation duality
Issue Matting-
Matting/Mounting Materials Mounting
(from Acquisition process) Materials
Issue
Images
Assembled Plaques
Finishing Phase (3) (to Phase 3)
Issue
Assembled
Plaques
Finishing
Labor
Labor (from Operation duality Job
Payroll process)
Issue
Finishing
Varnish Finished Plaques
Finishing Varnish (to Sales process)
(from Acquisition
process)
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(1,1)
(1,1) Materials
Requisition
(1,1)
(0,N)
reserves (0,1) (0,N) (0,N) inside (0,N)
reserves Executes
(0,N) Inventory
(0,N)
Executes inside
(0,N) Clerk
(1,?)
(1,1) inside
Unfinished
(1,N) use
(1,1)
Unfinished
Plaque
Plaque (0,N)
(0,N) (1,?)
Inventory(1,N) (1,1) (1,1)
(0,N)
Stain/Paint Issuance inside
Reciprocal use (1,1) Supervisor
duality
(0,N) Issuance (1,1)
(1,N)
Stain/Paint (1,1) (1,1) Labor inside (0,N)
inside inside (1,?)
type Respon-
(0,N) (0,N) (0,N) (1,1) sible
Inventory
(0,N) Supervisor Inventory Preparation
linkag linkag
inside
Production (1,1)
e (1,N) Clerk
e
Job (1,N)
(0,N) Employee
Prepared Plaque (0,1) (1,N)
(1,N) pro- (1,N)
duce (0,N)
Inventory Executes
inside
(0,N) (0,N) (1,N)
reserves
(1,1) Production inside Supervisor
Order (1,1) (0,N)
(1,1)
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(1,1)
(1,1) Materials
Requisition (1,1)
inside
Inventory
(0,N)
(0,N) (0,N) (0,N)
reserves (0,1) (0,N) (0,N)
reserves Executes (1,?) Clerk
(1,1) (0,N)
reserves Image inside
Executes (0,N)
(0,N) (1,N)
Executes Image use
Issuance (1,1)
(0,N) inside
(1,?) (0,N)
(1,?) Inventory inside
Prepared
(1,N) Prepared (1,1)
use (1,1) send
Plaque
Plaque (0,N) (0,N)
(0,N)
Inventory (1,N) (1,1)
(1,1) (0,N)
Mat-Mounting Issuance (1,1) receives
Reciprocal use (1,1) Supervisor
duality (1,1)
(0,N) Mat’l Issuance (1,N)
Mat-Mounting (1,1) (1,1) Labor
inside (0,N)
inside type Respon-
inside (1,?)
(0,N) (0,N) (0,N) (1,1) sible
(0,N)
Mat’l Invent. Supervisor Inventory Assembly
linkag linkag
inside
Production (1,1)
e (1,N)
e Clerk Job (1,N) (0,N) Employee
(1,N)
(1,N) Assembled (0,1) pro- (1,N)
duce (0,N)
Plaque Inventory Executes
inside
(0,N) (0,N) (1,N)
reserves
(1,1) Production inside Supervisor
Order (1,1) (0,N)
(1,1)
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(1,1)
Materials
(1,1) Requisition
(1,1)
(0,N) (0,N) (0,N)
reserves (0,1) inside (0,N)
reserves Executes
(0,N) Inventory
Executes
(0,N) Clerk
(1,?) inside
Assembled (1,1) (0,N) Supervisor
(1,1) Assembled
(1,N) use inside
Plaque
Plaque (0,N)
(1,?)
Inventory (1,1) (1,1)
(1,N) Issuance (0,N)
Reciprocal use Finish. Varnish inside Supervisor
(1,1)
duality (1,1)
(0,N) Issuance (1,N)
(1,1) Labor
Finish.Varnish (1,1) inside (0,N)
inside type
inside (1,?) Respon-
(0,N) (0,N) (0,N) (1,1)
Inventory sible
(0,N) Finishing Inventory Finishing
linkag linkag
inside
Production (1,1)
e (1,N) Supervisor Clerk
e Job (1,N) (0,N) Employee
Finished Plaque (0,1) (1,N) (1,N)
(1,N) pro-
duce
Inventory Executes (0,N)
inside
(0,N) (1,N)
(0,N)
reserves
(1,1) Production inside Supervisor
(1,1) (0,N)
(1,1) Order
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aReview Questions
R1. What is the primary objective of the human resource process?
The primary objective of the human resource business process is to provide and
pay for the human labor and expertise that an organization needs to function
efficiently and effectively.
R2. How is the human resource process related to the conversion process, the
sales/collection process, the acquisition/payment process, and the financing
process?
The human resource process makes labor available to all of those other
processes. Usually the use of the labor is only tracked in the conversion process,
although sometimes labor use is tracked in the other processes. The cash used
to obtain the labor in the human resource process is typically made available by
the financing process.
R3. What is the difference between a timecard and a job time ticket?
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R4. Which functions in the human resource process are typically thought of as
personnel functions, and which functions are typically thought of as payroll
functions?
The personnel function hires, trains, evaluates, and terminates employees. The
payroll function disburses payments to employees.
R5. Identify the resources, internal agents, external agents, and possible locations
associated with each of the following business events in the human resource
process:
a. Schedule (Commitment to Increment) event
b. Labor Acquisition (Economic Increment) event
c. Budget (Commitment to Decrement) event
d. Cash Disbursement (Economic Decrement) event
R6. Describe the information required by each of the following in performing their role
in the human resource process:
a. Management
b. Payroll
c. Accounting
d. Personnel
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Accounting needs information for financial reporting, including details of the labor
acquisitions and cash disbursements that applied to those labor acquisitions.
Examples of financial statement line items for which human resource process
information is needed are wages expense and wages payable. Some enterprises
track direct labor costs as part of a financial statement line called cost of goods
manufactured. Although the labor cost in cost of goods manufactured is typically
captured as the using up of labor in the conversion process, as compared to the
acquisition of labor in the human resources process, wages expense must be
adjusted for this amount to avoid double-counting expenses.
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Discussion Questions
D1. How do you compute the dollar amount of wages payable for financial statement
purposes using a database designed with the REA ontology?
Create a query to sum gross pay amounts for labor acquisitions through the
balance sheet date using the labor acquisition entity table. Create another query
to sum paycheck and withholdings amounts through the balance sheet date
using the duality relationship and cash disbursement tables. Create a query that
subtracts the total paycheck and withholdings amounts from the gross pay
amounts to get wages payable.
D2. How does training provided to employees affect the resources in the human
resource process?
Employee skills and knowledge are the true resources in the human resource
process. Training increases these skills and knowledge thereby making the
resources more valuable. However, mechanisms are typically inadequate to
measure the value of employee skills and knowledge either before or after
training, so typically training is typically recorded as an expenditure in the
acquisition/payment process. Also difficult to capture in the system is the fact
that employee skills and knowledge are resources that the enterprise doesn’t
own completely; if the employees leave the enterprise, they take their skills and
knowledge with them. Unless an enterprise has developed a means of capturing
some aspects of those resources (for example, through a knowledge
management system) the enterprise retains none of the value.
D3. Consider the tables in Exhibit 12-7. Describe the necessary procedures to
construct a query to determine the number of hours for which Freda Matthews is
scheduled to work during the first week of April, 2010.
D4. Consider the tables in Exhibit 12-5. Describe the necessary procedures to construct a
query to determine the total number of labor hours needed for unfulfilled labor requisitions.
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Applied Learning
A1. Customers engage Kravenhall Katering to provide food and beverages at upscale
parties. When notified about an upcoming party, one of Kravenhall’s supervisors
must determine staffing needs. The supervisor records the number of hours
required for each type of labor (e.g. cooking a ham, baking a cake, serving food, or
bartending) on a staffing plan for the catering job. The supervisor also notes on the
staffing plan whether the client has requested any specific employees for the
catering job. The supervisor then creates a schedule for the catering job by calling
the employees who have the skills needed for each type of labor and verifying their
availability and willingness to participate in the catering job for a specified wage
rate. The schedule lists each employee and the date and hours the employee will
need to work on this job. When the catering job occurs, details of the hours worked
by each employee are recorded on a timecard. The supervisor verifies the
accuracy of each timecard and sends them to the payroll department. On the 15 th
and last day of each month, a payroll clerk summarizes each employee’s
timecards for catering jobs in the current pay period. The clerk calculates gross
pay, withholdings, and net pay dollar amounts and enters the payment information
into the database. The net pay amounts are transferred to the employees’ bank
accounts via direct deposit and a pay stub is given to each employee for
recordkeeping purposes.
Cash disbursements are tracked via voucher number, since check numbers and
direct deposit numbers for different checking accounts may overlap. Kravenhall’s
cash accounts are all located in banks; Kravenhall has multiple accounts in some
banks and single accounts in other banks. For example, Kravenhall has checking,
savings, and money market accounts at First Metro Bank and only a certificate of
deposit account at Uniontown Bank. Information about banks is only entered into
Kravenhall’s system after information is entered about the accounts in those
banks. Less than half of the payments Kravenhall issues are for payroll; other
checks are written to vendors, stockholders, lenders, and so on. Payroll clerks only
process payroll payments; employees in various other positions process nonpayroll
payments.
After labor type information is entered, Kravenhall needs to determine and enter
the various skill types (e.g. baking skill or bartending skill) and the degree of skill
level (i.e., high, medium, or low) needed for each type of labor. For example, for
the labor type bake a souffle, a high degree of baking skill may be needed;
whereas for the labor type bake a cake, a low degree of baking skill may
suffice. To aid in scheduling, Kravenhall wants to be able to look up the degree of
each skill type each employee possesses and the means by which the employee
acquired the skill (e.g., by taking a class, through experience, or by some other
means). Therefore after information about employees is entered into the system,
information describing the skill types each employee possesses must also be
entered.
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Required:
a. Prepare an REA business process level model for Kravenhall in ER diagram or
grammar format including all relevant entities, relationships, attributes, and
participation cardinalities. The following attributes are of interest to Kravenhall and
should be included in your solution. Do not add or subtract any attributes.
b. Convert your REA business process level model into a set of minimal relational
table structures.
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degree means of
(0,N) acquiring
has
ST-ID SP#
Skill Type Staffing Plan (0,N)
desc date P1
(0,N) (0,1)
reqhours (1,1)
(1,N) fulfill1 P2
st wage
propos (1,1)
ESID (0,N)
(0,N) Employee
degree date Supervisor
req required Schedule (1,1) (0,N)
est wage P3
schedhrs (0,N)
(1,N) (1,N)
(0,N) reserv fulfill2 tot
hrs wage
(0,N) Supervisor SuperID
(1,1)
P5
LT-ID Maxsub
Labor (0,N)
Labor Type (0,N) (1,N) (1,1)
desc Sf1 Acquisition est wage
(Timecard) P6
emphours
std wage
TC#
(1,1) P4
rate
(0,1) (0,N)
TC (0,N)
Acct# acct type date duality with- Employee (0,N)
holdings P7
(0,N) (1,1) (0,N) (0,N)
(0,1)
Cash Sf2 (0,N)
Cash EmplID name address phone
Disbursement
P8
(0,1)
(1,1)
voucher date amount Check (0,N) clerkID
in # or dd#
Payroll Clerk
fidelity bond
rating
(1,N)
bankID
Bank
bank name
bank address
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Entity: Bank
Attributes: BankID
Bank Name
Bank Address
Identifier: BankID
Entity: Cash
Attributes: Account no.
Account type
Identifier: Account no.
Entity: Cash Disbursement
Attributes: Voucher no.
Date
Amount
Check or direct deposit no.
Identifier: Voucher no.
Entity: Employee
Attributes: EmployeeID
Name
Address
Phone
Identifier: EmployeeID
Entity: Employee Schedule
Attributes: Employee Schedule ID
Date
Identifier: Employee Schedule ID
Entity: Labor Acquisition (Timecard)
Attributes: Timecard no.
Date
Total hours
Wage
Identifier: Timecard no.
Entity: Labor Type
Attributes: Labor type ID
Description
Standard wage rate
Identifier: Labor type ID
Entity: Payroll Clerk
Attributes: Fidelity bond rating
Identifier: Clerk ID
Entity: Skill Type
Attributes: Skill type ID
Description
Identifier: Skill type ID
Entity: Staffing Plan
Attributes: Staffing plan ID
Date
Identifier: Staffing plan ID
Entity: Supervisor
Attributes: Maximum number of subordinates
Identifier: SupervisorID
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Relationship: Duality
Connected Entities: (0,1) Labor Acquisition (Timecard)
(0,N) Cash Disbursement
Attributes: Withholdings
Relationship: Fulfillment1
Connected Entities: (0,1) Staffing Plan
(1,1) Employee Schedule
Relationship: Fulfillment2
Connected Entities: (0,N) Employee Schedule
(1,1) Labor Acquisition (Timecard)
Relationship: Generalization
Connected Entities: Payroll Clerk
Employee
Connected Entities: Supervisor
Employee
Relationship: Has
Connected Entities: (0,N) Employee
(0,N) Skill Type
Attributes: Degree possessed
Means of acquiring
Relationship: In
Connected Entities: (1,1) Cash
(1,N) Bank
Relationship: Participation1
Connected Entities: (0,N) Staffing Plan
(0,N) Employee
Relationship: Participation2
Connected Entities: (1,1) Staffing Plan
(0,N) Supervisor
Relationship: Participation3
Connected Entities: (1,1) Employee Schedule
(0,N) Supervisor
Relationship: Participation4
Connected Entities: (1,N) Employee Schedule
(0,N) Employee
Attributes: Estimated wage
Employee hours
Relationship: Participation5
Connected Entities: (1,1) Labor Acquisition
(0,N) Supervisor
Relationship: Participation6
Connected Entities: (1,1) Labor Acquisition
(0,N) Employee
Relationship: Participation7
Connected Entities: (0,1) Cash Disbursement
(0,N) Employee
Relationship: Participation8
Connected Entities: (0,1) Cash Disbursement
(0,N) Payroll Clerk
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Relationship: Proposition
Connected Entities: (1,N) Staffing Plan
(0,N) Labor Type
Attributes: Required hours
Standard wage rate
Relationship: Required
Connected Entities: (0,N) Skill Type
(0,N) Labor Type
Attributes: Degree of skill type required
Relationship: Reservation
Connected Entities: (1,N) Employee Schedule
(0,N) Labor Type
Attributes: Scheduled hours
Estimated wage rate
Relationship: Stockflow1
Connected Entities: (1,N) Labor Acquisition
(0,N) Labor type
Relationship: Stockflow2
Connected Entities: (0,N) Cash
(1,1) Cash Disbursement
Cash
Account# Type BankID FK
Ca1 Checking FMB
Ca2 Savings FMB
Ca3 Money Market FMB
Ca4 CD UB
Ca5 Checking CB
Cash Disbursement
Voucher# Date Amount Check/DD# Account# FK Clerk ID FK PayeeIDFK
CDV17 4/1/2010 $4,281.59 1 Ca5 Emp02 Sup17
CDV18 4/3/2010 $2,145.35 2 Ca5 Emp02 Sup23
CDV19 4/15/2010 $85.00 1 Ca1 Emp12 Emp07
CDV20 4/15/2010 $35.00 2 Ca1 Emp12 Emp08
CDV21 4/15/2010 $77.00 3 Ca1 Emp12 Emp10
CDV22 4/15/2010 $15.00 4 Ca1 Emp12 Emp09
Payroll Clerk
Fidelity bond rating
Clerk ID
Emp12 A+
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Employee
Name Address Phone#
EmplID
Emp07 Emily Norton 123 Back St. 555-6313
Emp08 Jamie Lee 123 Back St. 555-6313
Emp09 Dale LeRoy 83105 Fir St. 555-7515
Emp10 Cyndie Reeve 8098 Oak Ave. 555-8316
Emp11 Candace Clark 3123 Church Dr. 555-1236
Emp12 Timothy Benson 4410 Tampa St. 555-8446
Labor Acquisition
TimecardDate HrsWorked Wage ES# EmplID FK SuperID FK
TimeCard#
TC1 4/5/2010 4 10 ES1 Emp07 Emp12
TC2 4/5/2010 4 7 ES1 Emp08 Emp12
TC3 4/5/2010 4 10 ES1 Emp10 Emp12
TC4 4/7/2010 3 11 ES2 Emp07 Emp12
TC5 4/7/2010 3 10 ES2 Emp10 Emp12
TC6 4/8/2010 3 7 ES3 Emp08 Emp12
TC7 4/8/2010 3 7 ES3 Emp09 Emp12
TC8 4/10/2010 3.5 12 ES4 Emp07 Emp12
TC9 4/10/2010 3.5 10 ES4 Emp10 Emp12
Labor Type
Description Std wage
LT-ID
LT1 Bake a cake $5
LT2 Bake a soufflé $10
LT3 Tend complete bar $10
LT4 Serve buffet style $7
LT5 Serve appetizers, carry tray $12
LT6 Serve sit-down $10
LT7 Tend beer and wine bar $7
Skill Type
Description
ST-ID
ST1 Baking
ST2 Bartending
ST3 Serving
Employee Schedule
Date SuperID FK SP#FK
ES#
ES1 4/1/2010 Emp11 SP1
ES2 4/3/2010 Emp11 SP2
ES3 4/4/2010 Emp11 SP3
ES4 4/6/2010 Emp11 SP4
Supervisor
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Max#subordinates
SuperID
Emp11 4
Staffing Plan
Date Super ID FK
SP#
SP1 3/27/2010 Emp11
SP2 3/29/2010 Emp11
SP3 3/30/2010 Emp11
SP4 3/31/2010 Emp11
Proposition: Staffing Plan – Labor Type
LT-ID Req-hours Std-wage
SP#
SP1 LT2 1 10
SP1 LT3 3 10
SP1 LT4 4 7
SP1 LT5 1 12
SP2 LT6 6 10
SP3 LT4 3 7
SP3 LT7 3 7
SP4 LT5 3 12
SP4 LT3 3 10
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SP4 Emp7
SP4 Emp10
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True/False Questions
1. The financing business process provides the capital resources an enterprise needs to fund all
aspects of its operations.
Ans: True
Ans: False
Response: Enterprises may also acquire cash by equity financing.
3. With debt financing, an enterprise borrows cash from one or more external business partners
for a specified time period and with the agreement that the enterprise will pay a specified
interest rate in addition to the principal balance.
Ans: True
4. At the value system level, the financing process is the point of contact between an enterprise
and its employees.
Ans: False
Response: At the value system level the financing process is the point of contact between an
enterprise and its investors and creditors.
5. At the value chain level, cash is typically made available by the financing process to the
revenue process.
Ans: False
Response: The revenue process typically makes cash available to the financing process; the
financing process typically makes cash available to the acquisition/payment and payroll
processes
Ans: True
7. Cash is both the resource acquired and the resource given in the financing process.
Ans: True
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Ans: True
9. The only attribute that typically needs to be captured regarding a cash requisition event is the
dollar amount of cash identified as needed.
Ans: False
Response: The date and time of the requisition are also important attributes to capture
10. New data entered as a result of a cash requisition event are typically entered into the cash
requisition table and in the table that implements the proposition relationship between the
cash requisition event and the cash resource.
Ans: True
11. In equity financing, the mutual commitment event is typically called a loan agreement and is
represented by a promissory note or bond certificate.
Ans: False
Response: Loan agreements are part of debt financing; the mutual commitment event in
equity financing is a stock issuance commitment event and is represented by shares of stock.
12. Shares of stock are guarantees of future cash flows to the shareholders that own them.
Ans: False
Response: Shares of stock do not guarantee future cash flows; although they represent
commitments for future cash flows, there is no guarantee.
13. Once dividends are declared, the enterprise is required by law to actually pay the dividends
Ans: True
14. A stock certificate is used to represent one type of commitment event in the financing cycle.
Ans: True
15. The primary economic increment event in the financing process is the stock issuance event.
Ans: False
Response: The primary economic increment event in the financing process is the cash
receipt event. The stock issuance event is a commitment event.
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16. Cash disbursements are economic decrement events that decrease the enterprise's cash
balance.
Ans: True
17. The financing process is in essence a special case of the acquisition/payment cycle.
Ans: True
18. The outstanding principal balance of a loan on a specified date is an example of a Stockflow
relationship query in the financing process.
Ans: False
Response: The outstanding principal balance of a loan on a specified date is a duality
relationship query
19. To answer the question “Into which cash account was a cash receipt deposited?” one should
examine the Duality relationship in the financing process.
Ans: False
Response: One would want to examine the stockflow relationship
20. Cash disbursements made via electronic funds transfer are typically stored as part of a
different entity set than are cash disbursements made via paper checks.
Ans: False
Response: The same information is typically tracked regarding electronic funds transfers and
paper checks, therefore disbursements of both types are typically considered members of the
same entity set called cash disbursements.
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21. From which other business process(es) is cash typically made available to the financing
business process?
A) Acquisition/Payment
B) Payroll
C) Manufacturing
D) Sales/Collection
E) Cash is usually not made available to the financing process by any other business
process.
Ans: D
22. Examine the following diagram. What are the most appropriate labels to put on the arrows
labeled A, B, and C?
A)
A B C
Cash Cash Cash
B)
A B C
Cash Inventory Labor
C)
A B C
Labor Inventory Operating Assets
D)
A B C
Labor Cash Cash
E)
A B C
Inventory Labor Equipment
Ans: A
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23. Examine the following diagram. What type of event must be included inside the Financing
Process circle to correspond to the resource represented by arrow A?
Ans: D
Ans: E
25. Selling shares of an enterprise's common stock, borrowing money from a bank, and declaring
and paying dividends are examples of some of the more general activities in which business
cycle?
A) Sales/Collection
B) Acquisition/Payment
C) Conversion
D) Financing
E) None of the above
Ans: D
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26. At the value system level, the financing process is the point of contact between the enterprise
and its
A) Customers
B) Suppliers
C) Employees
D) Investors/Creditors
E) Own manufacturing process
Ans: D
Ans: A
28. In the financing process, which type of event indicates the enterprise and an external partner
have reached an agreement?
A) Instigation
B) Mutual Commitment
C) Economic Increment
D) Economic Decrement
E) Economic Reversal
Ans: B
29. Which attribute of a cash resource entity is usually a volatile derivable attribute?
A) Cash account identifier
B) Cash account name
C) Cash account type
D) Cash account location
E) Cash account balance
Ans: E
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30. In the financing process, the identification of need for cash is usually labeled as
A) Cash requisition
B) Cash commitment
C) Cash receipt
D) Cash disbursement
E) Cash monitoring
Ans: A
31. Which of the following most likely represents a mutual commitment event in a debt
financing process?
A) Stock issuance
B) Dividend declaration
C) Loan contract
D) Cash receipt
E) Cash requisition
Ans: C
32. Which of the following types of data should typically be captured for a stock issuance?
A) Interest rate
B) Maturity date
C) Par value
D) Repayment schedule
E) Unpaid principal
Ans: C
33. Examine the entity pairs presented. Which pair is most likely to be linked together in a
financing cycle proposition relationship?
A) Cash and Cash receipt
B) Cash and Dividend declaration
C) Cash and Loan agreement
D) Cash and Cash requisition
E) Cash and Cashier
Ans: D
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34. Examine the entity pairs presented. Which pair is most likely to be linked together in a
financing cycle duality relationship?
A) Sale and Cash receipt
B) Cash requisition and Loan agreement
C) Loan agreement and Cash receipt
D) Dividend declaration and Stock issuance
E) Cash receipt and Cash disbursement
Ans: E
35. Examine the entity pairs presented. Which pair is most likely to be linked together in a
financing cycle stockflow relationship?
A) Stock issuance and Cash receipt
B) Cash and Cash disbursement
C) Acquisition and Inventory
D) Cash requisition and Cash
E) Dividend declaration and Cash
Ans: B
36. A financial officer of KayGee Corporation approves the sale of one million shares of $2 par
value stock to obtain cash for the purchase of property on which to build a new
manufacturing facility. Over the course of a week, all one million shares of stock were issued
to stockholders for $27.50 per share. A cashier processed the cash received from each
stockholder. Which of the following best summarizes the internal and external agents
associated with the events as described?
A)
B)
C)
D)
E)
Ans: C
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37. Which financing cycle scenario is a reasonable description of the following conceptual
model?
Commitment
Event
(0,1) (0,N)
Fulfill- Fulfill-
ment1 ment2
(0,1) (0,1)
Economic Economic
Increment Event Decrement Event
A) A short-term line of credit at a local bank is established so that each time the enterprise's
checking account balance is less than $100, cash of $1,000 is automatically deposited
into the account. Repayment of each $1,000 transfer is due within 30 days, with an
interest rate of 8%. The line of credit is a commitment event, the cash deposit is an
economic increment event. Repayment of the line of credit is an economic decrement
event.
B) An enterprise offers installment sales whereby the customer pays for merchandise over
the course of six months. The sale contract is a commitment event, the cash receipts from
the customer are economic increment events and the sale of the merchandise is an
economic decrement event.
C) An enterprise borrows $20,000 cash and uses it to purchase land. The promissory note
terms require the principal and interest to be repaid monthly according to an amortization
schedule that reflects 8% interest. The loan is a commitment event, the receipt of the
$20,000 cash is an economic increment event, and the monthly payments of principal and
interest are economic decrement events.
D) An enterprise sells shares of its own common stock for $350,000. The sale agreement is a
commitment event, the cash receipt is an economic increment event, and the stock
issuance is an economic decrement event.
E) An enterprise accepts merchandise from individuals on consignment and displays that
merchandise in its storefront. When the merchandise is sold, the enterprise keeps 20% of
the selling price and remits 80% of the proceeds to the merchandise owner. The
consignment agreement is a commitment event, the sale and cash receipt are economic
increment events and the cash disbursement is an economic decrement event.
Ans: C
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38. Which financing cycle scenario is a reasonable description of the following conceptual
model?
(0,N) (1,N)
Commitment Reciprocal
Commitment
Event2 Event2
(0,1) (0,N)
Fulfill- Fulfill-
ment1 ment2
(0,1) (0,1)
Economic Economic
Increment Event Decrement Event
A) A short-term line of credit at a local bank is established so that each time the enterprise's
checking account balance is less than $100, cash of $1,000 is automatically deposited
into the account. Repayment of each $1,000 transfer is due within 30 days, with an
interest rate of 8%. The line of credit is a commitment event, the cash deposit is both an
economic increment event and a commitment event. Repayment of the line of credit is an
economic decrement event.
B) An enterprise offers installment sales whereby the customer pays for merchandise over
the course of six months. The sale contract is a commitment event, the customer
statements sent each month are commitment events, the cash receipts from the customer
are economic increment events and the sale of the merchandise is an economic decrement
event.
C) An enterprise borrows $20,000 cash and uses it to purchase land. The promissory note
terms require the principal and interest to be repaid monthly according to an amortization
schedule that reflects 8% interest. The loan is a commitment event, the receipt of the
$20,000 cash is an economic increment event, the monthly payment of interest is a
commitment event, and the monthly payment of principal is an economic decrement
event.
D) An enterprise sells 10,000 shares of its own common stock for $350,000. A year later, the
enterprise declares dividends of $2 per share for a total of $20,000. The stock issuance is
a commitment event, the cash receipt is an economic increment event, the dividend
declaration is a commitment event, and the dividend payment is an economic decrement
event.
E) An enterprise accepts merchandise from individuals on consignment and displays that
merchandise in its storefront. When the merchandise is sold, the enterprise keeps 20% of
the selling price and remits 80% of the proceeds to the merchandise owner. The
consignment agreement is a commitment event, the sale is a commitment event, the cash
receipt is an economic increment event and the cash disbursement is an economic
decrement event.
Ans: D
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39. Given the following tables, calculate the outstanding principal balance of all loans as of June
30, 2010.
A) $ 725,000
B) $ 800,000
C) $1,725,000
D) $1,800,000
E) $ 75,000
Ans: A
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40. Given the following tables, what was the total dollar amount of Dividends Payable as of May
1, 2011?
A) $1,000,000
B) $500,000
C) $100,000
D) $50,000
E) $.50
Ans: D
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41. Using the following table, which of the cash disbursements (please list the voucher and check
numbers) appear most likely to be payments of dividends? How did you determine this?
Cash Disbursement
Voucher CheckNo. Cash Amount AP Clerk Vendor Stockholder
No. Account No. Number Number Number
1 1 89591020 $1,900 33 40207
2 1 78782040 $3,000 33 40208
3 2 89591020 $32,000 33 40205
4 2 78782040 $400,000 33 40200
5 3 89591020 $940,000 33 40201
6 3 78782040 $10,000 33 40206
7 4 78782040 $120,000 33 40202
8 5 78782040 $30,000 33 40203
9 6 78782040 $132,000 33 40202
10 4 89591020 $72,600 33 40209
11 5 89591020 $252,000 33 40200
12 7 78782040 $13,000 33 40204
13 6 89591020 $356,000 33 40200
14 7 78782040 $200,000 33 40201
15 8 78782040 $30,000 33 40203
16 8 89591020 $60,000 33 40
17 9 89591020 $20,000 33 41
18 10 89591020 $40,000 33 42
19 11 89591020 $72,600 33 40209
Ans: Vouchers 16-18 (checks 8-10 from account 89591020) because they are paid to
stockholders whereas all the other cash disbursements are paid to vendors.
42. A substantial portion of most enterprises' cash is used to fund which two business processes?
44. Describe the details involved in debt financing as a mechanism for acquiring cash.
Ans: The enterprise borrows cash from one or more external business partners for a
specified period of time and with the agreement that the enterprise will pay a specified
interest rate as well as repayment of the principal balance.
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45. At the value system level, the financing process is the point of contact between the enterprise
and which type(s) of external business partners?
46. What document is often prepared after a cash flow budget reveals a forecasted cash shortfall?
Ans: Either a cash requisition form or a memorandum summarizing the need for additional
cash and the mechanism by which the enterprise proposes to obtain the cash (e.g. debt or
equity).
47. List at least four attributes of debt financing agreement events that typically should be
captured in enterprise databases.
Ans: The agreement date, the total dollar amount to which the agreement commits, the
interest rate that applies to the agreement, and the maturity date of the agreement.
48. List at least four attributes of equity financing agreement events that typically should be
captured in enterprise databases.
Ans: The date stock was issued, par value of the stock issued, the number of shares of stock
issued, and the dollar amount for which the stock was issued.
49. On the date on which an enterprise receives loan proceeds, into which database table(s)
should data be added?
Ans: Data should be added to the Cash Receipt table and into a table that represents the
fulfillment relationship between the cash receipt and loan events (i.e., if the cardinalities of
that relationship warranted creation of a separate relationship table) or into the loan table
(i.e., if the fulfillment relationship was implemented with the primary key of the cash receipt
table posted into the loan table as a foreign key).
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50. Given the following relational database tables, calculate the outstanding principal balance of
Loan L1 as of May 1, 2010.
Ans: $450,000 (Original principal of Cash Receipt that fulfilled L1 = $450,000; cash
disbursements that represented principal repayments that fulfilled L1 = $0; $450,000 - $0 =
$450,000.)
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Essay Questions
51. Describe two different types of commitment events that lead to both cash receipts and cash
disbursements in the financing business process. Which type of commitment event is more
certainly associated with future cash disbursements, and why?
Ans: Debt financing includes a loan commitment that leads to a cash receipt for the principal
borrowed and to cash disbursements for the interest payments and principal repayments.
Equity financing includes a stock issuance commitment event that leads to a cash receipt for
the stock sale proceeds and to cash disbursements for dividend payments and possibly stock
re-purchases. Because dividends are never guaranteed, and because creditors have priority
for liquidated assets over many other parties in case of bankruptcy, loans are more certainly
associated with future cash disbursements as compared to stock issuance events.
52. Create a “generic” REA business process level model (without cardinalities) in either
grammar or diagram format to represent the financing business process for a privately held
company whose only method of financing is via debt. Your model should encompass the
entire payroll process, from the identification of need for cash to the repayment of debt.
Ans: Diagram should include the following entities and relationships (may vary slightly)
Cash Requisition to Cash (proposition)
Cash Requisition to Suggested Creditor (optional) (participation)
Cash Requisition to Financing Officer (participation)
Cash Requisition to Debt Financing Agreement (fulfillment)
Debt Financing Agreement to Cash (reservation)
Debt Financing Agreement to Financing Officer (participation)
Debt Financing Agreement to Creditor (participation)
Debt Financing Agreement to Cash Receipt (fulfillment)
Debt Financing Agreement to Cash Disbursement (fulfillment)
Cash Receipt to Cash (stockflow)
Cash Receipt to Cashier (participation)
Cash Receipt to Creditor (participation)
Cash Receipt to Cash Disbursement (duality)
Cash Disbursement to Cash (stockflow)
Cash Disbursement to Payables Clerk (participation)
Cash Disbursement to Creditor (participation)
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53. Create a “generic” REA business process level model (without cardinalities) in either
grammar or diagram format to represent the financing business process for a publicly held
company whose only method of financing is via equity. Your model should encompass the
entire payroll process, from the identification of need for cash to the payment of dividends.
Ans: Diagram should include the following entities and relationships (may vary slightly)
Cash Requisition to Cash (proposition)
Cash Requisition to Suggested Investors (optional) (participation)
Cash Requisition to Financing Officer (participation)
Cash Requisition to Stock Issuance Event (fulfillment)
Stock Issuance Event to Cash (reservation)
Stock Issuance Event to Financing Officer (participation)
Stock Issuance Event to Stockholder (participation)
Stock Issuance Event to Cash Receipt (fulfillment)
Stock Issuance Event to Dividend Declaration Event (reciprocal)
Dividend Declaration Event to Cash (reservation)
Dividend Declaration Event to Cash Disbursement Event (fulfillment)
Dividend Declaration Event to Financing Officer (participation)
Dividend Declaration Event to Stockholder (participation)
Cash Receipt to Cash (stockflow)
Cash Receipt to Cashier (participation)
Cash Receipt to Stockholder (participation)
Cash Receipt to Cash Disbursement (duality)
Cash Disbursement to Cash (stockflow)
Cash Disbursement to Payables Clerk (participation)
Cash Disbursement to Stockholder (participation)
54. Optimum Properties (OP) is a privately held real estate investment company that purchases
properties, constructs buildings such as shopping centers, movie theaters, and churches, and
leases those facilities to retailers, entertainment companies, and church congregations. Often
new properties become available at times when OP has insufficient cash on hand and to take
advantage of the opportunity OP must borrow money. The chief financial officer (CFO)
works closely with the chief executive officer (CEO) to determine whether a potential
property investment warrants debt financing. If the CEO determines the property has
sufficient potential, the CFO determines the dollar amount of cash needed, obtains
preliminary information as to likely financing terms such as interest rate and maturity date,
and enters a cash requisition in the enterprise system. The CFO then executes a financing
agreement with a lender, thereby committing OP to receive cash and to later repay the cash
plus specified interest. OP establishes a separate cash account for each property to aid in
tracking cash inflows and outflows associated with each property. However, OP assesses the
need for cash on an overall basis, rather than by account, there is no need to track a specific
cash account with respect to a cash requisition or a loan agreement.
When loan proceeds are received, OP deposits them into the account established for the
related property, where they remain until used for the property purchase. If the purchase falls
through, which occasionally happens, the loan principal is repaid immediately from the cash
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account established for that property; any accrued interest is paid from OP's headquarters
cash account. If the purchase proceeds as scheduled, a check for the purchase price is issued
from the property cash account to the property owner. As rental revenue is generated from
the property, resulting in cash deposits to the property cash account, the loan's principal and
interest are gradually repaid.
OP tracks its cash disbursements by voucher number, and its cash receipts by remittance
advice number. Less than 30% of the payments OP issues are for loan payments; other
checks are written to vendors and employees. Payables clerks process cash disbursements to
lenders and vendors; whereas payroll clerks process payments to employees. Cashiers
process all types of cash receipts.
Required:
a. Prepare an REA business process level model for OP in ER diagram or grammar format
including all relevant entities, relationships, attributes, and participation cardinalities. The
following attributes are of interest to OP and should be included in your solution. Do not
add or subtract any attributes.
b. Convert your REA business process level model into a set of minimal relational table
structures.
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Cash
Requisition
(1,1)
(0,N)
partici-
fulfill- pation1
ment1
(0,N)
(1,1)
(0,1)
stock- (1,1) (0,N) Cashier
Cash Account flow1 Cash Receipt partici-
pation4
(0,N) (1,1)
(0,1)
(0,N) (0,N) partici- (0,N)
stock- pation5
flow2 duality
(1,1)
(0,N)
(0,N) partici- Payables
pation6 Clerk
Cash (0,1)
(0,N) Fulfill- (0,N)
ment3
Disbursement
partici-
pation7
(0,1) (0,N)
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Cash Requisition
Requisition ID Date Amount CFOIDFK
Cash Receipt
Remittance Advice No. CR Date CR Amount CashierIDFK Cash Acct No.FK
Cash Disbursement
Voucher No. Check No. Date Amount CashAccountNo. FK
Loan Agreement
Loan ID. Date Amount Maturity Date Interest Rate RequisitionID FK CFOIDFK LenderIDFK
Lender
Lender ID Lender Name Lender Address
Cashier
Cashier ID Cashier Name Cashier Address
Payables Clerk
Clerk ID Clerk Name Clerk Address
Fulfillment2
LoanID Remittance Advice No.
Fulfillment3
LoanID Voucher No. Principal Paid Interest Paid
Note: Participation 5 may instead be represented as Sender ID posted into the Cash Receipt
table (for non-loan cash receipts, a different external agent would serve as the sender);
Participation6 may instead be represented as Processing Employee ID posted into the Cash
Disbursement table (for non-loan payments a different employee type would serve as the
processing employee id). Participation7 may instead be represented as PayeeID posted into
the Cash Disbursement table (for non-loan payments a different external agent would serve
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as payee). These alternative representations are examples of the combined entity key posting
implementation compromise discussed in chapter 10.
55. Examine the following financing cycle table structures selected from an enterprise's database.
On the line above each table, write the official REA object type represented by the table (e.g.
Economic Increment Event, Commitment Event, Internal Agent, Resource, Duality
Relationship, etc.) Note that this is not intended to be a complete database, so some REA
objects may be missing.
a)_____________________________________________________
Cash
Account No. Type Location Balance
b)_____________________________________________________
Capital Stock
Date Stock Number Par Total Issue Stockholder CFO
Stock Certificate Issued Type Shares Value Amount IDFK IDFK
Number
c)_____________________________________________________
Cash Receipt
Date DollarAmount CashierIDFK SourceIDFK Cash Acct No.FK
CashReceiptID
d)_____________________________________________________
Cash Disbursement
Voucher No. Date DollarAmount CheckNumber CashAccountNo. FK ClerkIDFK PayeeIDFK
e)_____________________________________________________
Loan Contract
Loan ID. Date Amount Maturity Date Interest Rate RequisitionID FK CFOIDFK LenderIDFK
f)_____________________________________________________
Financial Officer
Fin Officer Name Fin Officer Telephone
FinOfficerID
g)_____________________________________________________
Lender
Lender Name Lender Address
Lender ID
h)_____________________________________________________
Stockholder
Stockholder Name Stockholder Address
StockholderID
i)_____________________________________________________
Financing Clerk
Clerk Name Clerk Address
Clerk ID
j)_____________________________________________________
Cash Receipt - Cash Disbursement
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CashDisbVoucher No.
CashReceiptNumber.
k)_____________________________________________________
CashDisbForDividend
CashDisbVoucherNo DividendDeclarationID
l)_____________________________________________________
CashDisbForLoan
CashDisbVoucherNo LoanID Principal Paid Interest Paid
m)_____________________________________________________
Cash Receipt FromLoan
CashReceiptNumber LoanID
n)_____________________________________________________
DividendDeclaration-CapitalStock
DividendDeclarationID StockCertificateNumber
o)_____________________________________________________
DividendDeclaration-Stockholder
DividendDeclarationID StockholderID
p)_____________________________________________________
Cash Receipt FromStockIssuance
CashReceiptNumber StockCertificateNumber
q)_____________________________________________________
Dividend Declaration
Date DollarAmount PerShare PaymentDate FinOfficerIDFK
DividendDeclarationID
Ans:
a) Resource
b) Commitment Event
c) Economic Increment Event
d) Economic Decrement Event
e) Commitment Event
f) Internal Agent
g) External Agent
h) External Agent
i) Internal Agent
j) Duality Relationship
k) Fulfillment Relationship
l) Fulfillment Relationship
m) Fulfillment Relationship
n) Reciprocal Relationship
o) Participation Relationship
p) Fulfillment Relationship
q) Commitment Event
True/False Questions
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Ans: True
Ans: True
3. The materiality of a risk is determined solely by its impact on the organization; that is, by the
size of the potential loss and its impact on achieving the organization's objectives.
Ans: False
Response: Materiality of risk is also determined by its likelihood of occurring.
4. Management may choose to ignore risks that have a low impact and a low likelihood of
occurrence unless controls to mitigate those risks are costless.
Ans: True
5. The control environment sets the tone of the enterprise and can contribute to a high-risk
environment.
Ans: True
6. The attitudes and actions of top management typically do not affect the climate of an
enterprise, because they are rarely onsite.
Ans: False
Response: The attitudes and actions of top management largely determine the climate of an
enterprise. Attitudes and actions of lower level employees typically mirror the attitudes and
actions they see in top management.
Ans: False
Response: An error is an unintended mistake on the part of an employee; an irregularity is an
intentional effort to do something undesirable to an enterprise.
Ans: False
Response: Preventive controls focus on error and irregularity prevention. Corrective controls
provide compensation to minimize the damage if an error or irregularity occurs.
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9. Monitoring is the process of assessing the quality of internal control performance over time.
Ans: True
10. Economy risks include those resulting from war, epidemics, financial market changes,
terrorist attacks, and natural disasters such as floods, hurricanes, and drought.
Ans: True
11. The risk of recording incomplete, inaccurate, or invalid data about a business event is
considered a business process risk.
Ans: False
Response: That is an information process risk.
12. Enterprises should create contingency plans for transferring operations to a backup location
in case of business interruptions.
Ans: True
13. Lapping is a method of stealing cash in which an employee steals a customer payment and
uses funds from a subsequent customer payment to post to the first customer's account, using
funds from a third customer payment to post to the second customer's account, and
continuing on in that pattern until a valid account is written off as a bad debt, the perpetrator
is caught, the perpetrator leaves the firm, or some combination of those three possibilities.
Ans: True
14. Radio frequency identification tags are increasingly used to track the chain of custody of
resources.
Ans: True
15. Many of the risks associated with instigation events in the sales/collection process relate to
the salesperson's efficiency and effectiveness.
Ans: True
16. Accepting duplicate cash receipts for the same sale is a mutual commitment event risk.
Ans: False
Response: Accepting duplicate cash receipts for the same sale is an economic increment
event risk.
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17. Encryption requires fingerprint matches of the authorized sender and the authorized receiver.
Ans: False
Response: Encryption is a process of encoding data entered into the system, storing or
transmitting the data in coded form, and then decoding the data upon their use or arrival at
their destination. No fingerprints are required.
18. An uninterruptible power supply (UPS) is a combination of hardware and software used to
shield a computer network from unauthorized users or from file transfers of unauthorized
types.
Ans: False
Response: The description in this question is of a firewall. UPS provide battery support and
sound an alarm if electrical power to the system is interrupted, thereby allowing time to stop
computer processes and back up data and instructions.
Ans: True
20. A master reference check highlights illogical balances in a master file, for example a
negative value for quantity on hand.
Ans: False
Response: The control described is a valid sign check; a master reference check verifies that
an event/transaction record has a corresponding master record to be updated.
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21. Which of the following is a risk or threat that has plagued many companies?
A) Bad decisions by management to discontinue popular product lines
B) Faulty product design that causes costly recalls
C) Recognition of revenues a company has not actually earned
D) Invasion of a company's network by hackers through the Internet
E) All of the above
Ans: E
22. Which of the following approaches is often recommended for enterprises to control a risk
that has a high impact and a low likelihood of occurrence?
A) To purchase insurance
B) To discontinue the activity from which the risk results
C) To ignore the risk
D) To convince the enterprises' competitors to engage in the same risky activity
E) To charge higher prices to consumers in case the risk results in loss
Ans: A
Ans: A
Ans: E
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Ans: C
Ans: C
27. Seamore's Seafood Grill is an upscale yet casual restaurant on the Atlantic coast of North
Carolina. Seamore's recognized that the risk of property damage and lost revenues due to
hurricanes is significant because of its coastal location. To mitigate these risks, Seamore's
purchased a sizable hurricane insurance policy. This control is best described as
A) Primarily preventive
B) Primarily detective
C) Primarily corrective
D) Equally preventive and corrective
E) Equally preventive and detective
Ans: C
28. Which of the following are used as part of the monitoring component of the COSO internal
control integrated framework?
A) Preventive control procedures
B) Corrective control procedures
C) Backup procedures
D) Performance reviews
E) Bonding of key employees
Ans: D
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Ans: A
Ans: B
31. Which of the following risks does separation (segregation) of duties control?
A) Errors only
B) Irregularities only
C) Collusion only
D) Errors and irregularities, but not collusion
E) Irregularities and collusion, but not errors
Ans: D
32. An employee steals cash and makes a journal entry to cover up evidence of the theft. Which
two duties should have been separated to prevent this problem?
A) Custody and Authorization
B) Custody and Recording
C) Authorization and Recording
D) Authorization and Approval
E) No separation of duties would have helped; the case involved collusion
Ans: B
33. Which resource are employees most likely to steal from their employer?
A) Cash
B) Computer equipment
C) Furniture
D) Supplies
E) Radio frequency id tags
Ans: D
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34. The inventory part numbers for an enterprise consist of even numbers that range from 700 to
798. If a clerk mistakenly enters a part with an odd number, which control is most likely to
detect and correct the error?
A) Sequence check
B) Range check
C) Validity check
D) Field or mode check
E) Completeness check
Ans: C
35. Which of the following is a risk associated with the Customer Order event?
A) Salespeople spending time doing unproductive things that do not influence potential
customers
B) Shipping poorly packaged products
C) Lapping
D) An employee making an unauthorized allowance to a customer's account
E) Accepting an order for a product or service that is not currently sold by the company and
can't be made available
Ans: E
36. Which of the following is a risk associated with the Shipping activity?
A) Selecting a poor carrier or route
B) Salespeople spending a lot of time with non-target customers
C) Taking an order for a product or service that is not currently sold by the company and
can't be made available
D) Moving the incorrect inventory type or amount from warehousing to shipping
E) Approving the write-off of a customer's account with invalid justification
Ans: A
37. Which of the following is not a risk associated with the sale of merchandise?
A) Merchandise is sold to an invalid customer
B) The wrong type or quantity of merchandise is delivered to the customer
C) The credit manager does not authorize the sale
D) The salesperson receives sales commission based on net cash sale amounts
E) The sale is made for a wrong dollar amount
Ans: D
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38. A normally trustworthy cashier who opened a company's mail discovered a customer paid off
his account in cash ($500). The cashier was working alone at the time and pocketed the cash.
She couldn't resist the temptation because she needed to buy some expensive medicine for
her infant daughter and the company's insurance policy wouldn't cover the expense. Later,
the cashier accessed the company's accounting system and entered a credit memo for that
customer in the amount of $500 (so the customer wouldn't receive another bill and complain
that he had already paid it). Which of the following controls would have been LEAST
effective in PREVENTING this crime?
A) Require the credit manager's password to be used to enter credit memos into the system
B) Require more than one employee to be present when opening mail
C) Restrict physical access to the company's system so only employees who have no custody
or authorization functions can access it
D) Require the cashier to be bonded
E) Monitor the cashier workstation with video cameras and make employees aware their
actions are being monitored in that way
Ans: D
39. A company has established its customer defaults and has entered its customer records into its
information system. A sales clerk entering a sales transaction into the system begins by
entering the Customer ID code. In response, the system displays the default information (e.g.
Name, Ship-to address, Telephone number) for that customer. This is an example of
A) A field check
B) A reasonableness check
C) Closed loop verification
D) A foreign key check
E) Roll back and recovery
Ans: C
Ans: E
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Ans: Opportunity and risk go hand in hand. You can't have opportunity without risk.
Typically greater opportunities are accompanied by higher risks. Since enterprises want to
take advantage of opportunities they must also be willing to take risks.
44. What factors should an organization consider when determining whether to implement
controls to reduce a particular risk?
Ans: Materiality of the risk (and the related benefit opportunity) and the cost of
implementing controls for the risk
Ans: Some examples include global economic downturns, wars, epidemics, terrorist attacks,
and environmental disasters such as floods or hurricanes. Other examples are possible; they
must be evaluated to determine whether they are economy wide or whether they fit better
under one of the other risk categories.
47. List two important control principles for business process risks related to all types of
resources.
Ans: Separation of duties, Restriction of access. Others may be possible; these are the two
that are discussed most thoroughly in the textbook.
48. What type of risk is a mistake made in the advertising or promotions regarding a product
available for sale?
Ans: A verification of accuracy of the work performed by one employee, either by another
employee or by the enterprise system interface.
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50. To what business process risk are economic increment events particularly susceptible, and
why?
Ans: Because economic increment events involve resource inflows, these events are
particularly susceptible to risks associated with theft.
Essay Questions
51. Discuss the importance of an enterprise's control environment and describe each of the seven
areas within the control environment.
Ans: The control environment sets the tone of the enterprise; it provides discipline and
structure upon which all other components of internal control are built. Tit is largely
determined by the attitudes and actions of top management, and consists of the following
areas: (1) integrity and ethical behavior, (2) commitment to competence, (3) board of
directors and audit committee participation, (4) management philosophy and operating style,
(5) organization structure, (6) assignment of authority and responsibility, and (7) human
resource policies and practices.
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52. Write the CAPITAL letter of the term from the list below that most closely matches each of
the following definitions.
__M___ 1. Compares entered data to a predetermined acceptable upper and/or lower limit.
__H__ 2. Verifies that the entered data type is appropriate for a field (e.g. date, numeric, text)
__I__ 3. Uncontrolled risk
__C___ 4. Applies a formula to an account number, and if an expected sum is derived, gives
some assurance that the number is valid
__L___ 5. Verifies that an event/transaction record entered for updating correctly matches the
corresponding master file record
__A___ 6. Restrict unauthorized access to the system itself, to physical devices, and to data in
the system.
__B___ 7. Are used to verify that all transactions within batches are processed
__J___ 8. Used by data base management systems to prevent two applications from updating
the same record at the same time
__O___ 9. The keying of input data twice, with the computer comparing the two entries and
highlighting any discrepancies for correction
__G___ 10. A process of encoding data entered into a system, storing or transmitting the data
in coded form and then decoding the data upon their use or arrival at their destination
Ans:
1. M
2. H
3. I
4. C
5. L
6. A
7. B
8. J
9. O
10. G
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53. Think of a local convenience store in your town. List at least three risks associated with this
store’s sale of merchandise to customers, and propose one or more internal controls that
would mitigate those risks.
Ans: Students could come up with a variety of answers. Some are given here as examples,
but other valid answers are likely to be given.
(1) A risk is for the cashier to give too much change back to customers. Several controls
could help mitigate this, as follows
- Use a cash register that calculates the amount of change due so the cashier merely has to
count the change
- Require cashier to verbally count the change out when giving it to the customer
- Deduct any cash register shortages from the cashier’s paycheck
- Rely on customer honesty to return extra change
(2) A risk is to run out of merchandise that customers want to buy. Controls to mitigate this
risk include
- accurate inventory control and ordering procedures
(3) A risk is to have too high a quantity of perishable goods on hand that spoil before they are
sold. Controls to mitigate this risk include
- accurate inventory control and ordering procedures
(4) A risk is to charge too much for goods so that they don’t sell. Controls to mitigate this
risk include
- accurate market analyses
- monitoring of sales and price reductions if warranted by slow sales
(5) A risk is to charge too little for goods so profit is too low. Controls to mitigate this risk
include
- accurate costing procedures
- pricing policies based on accurate costing
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54. Bartt's Boxes manufactures and distributes boxes of various sizes and strengths. They take
mail and telephone orders from customers. They ship the boxes according to the customer
orders and send monthly statements to the customers who pay on a monthly basis. What are
at least three risks associated with Bartt's sales/collection process, and what are internal
controls that would mitigate these risks?
Ans: Students could come up with a variety of answers. Some are given here as examples,
but other valid answers are likely to be given.
(1) A risk is to ship merchandise to a customer who does not pay for it. A control is
- Check the credit of prospective customers and only ship merchandise to those who
appear creditworthy
(2) A risk is to ship the wrong merchandise to a customer. A control is
- Have an inventory clerk verify the packing slip against the customer's original order
before shipping it.
- Implement data entry controls such as key verification to ensure order data is entered
into the system correctly and that shipment data is compared to order data
(3) A risk is to ship the merchandise to an incorrect address. A control is
- Print address labels directly from customer master file and verify customer master file
record name against the customer name on the order
(4) A risk is to charge the customer an incorrect price for the merchandise. A control is
- Verify prices and inventory item numbers on customer statement against selling prices
for those inventory item numbers on the inventory master file
55. Explain the grandparent-parent-child backup and file reconstruction procedure. Should this
procedure be used for real-time processing systems? If not, what alternative procedure should
be followed?
Ans: At least three generations of both event/maintenance data and master reference data are
maintained. If the current version (“child” copy) of the master reference file is destroyed or
lost, the organization can reconstruct it by re-running the appropriate event/maintenance data
against the prior copy of the reference data (the “parent” copy). If a problem occurs during
that reconstruction run, there is one more set of backup data (i.e. the “grandparent” copy) to
reconstruct the parent. The parent is then used to reconstruct the child and processing
continues normally. The grandparent-parent-child procedure is used for batch processing
systems, but there is a similar procedure for reconstructing files in a real-time processing
system. Periodically the master reference file is duplicated on a backup medium such as a
disk or magnetic tape. Copies of all event and maintenance data are stored on a transaction
log as they are entered into the system. At least three generations of both the
event/maintenance data and the master reference data are maintained as with batch
processing. If the master reference file is lost or destroyed, the first generation backup copy
is updated for the activity on the transaction log since the copy of the master reference file
was made. Once the master reference file is updated, processing continues normally. The
three generations allow for additional errors in reconstructing the file. If the first generation
is destroyed in reconstructing the file, the second generation master reference file is used to
reconstruct the first generation master reference file.
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True/False Questions
1. Enterprise resource planning (ERP) systems are groups of software applications integrated to
form enterprise information systems.
Ans: True
Ans: True
Ans: False
Response: ERP systems originated from back-office applications such as accounting and
human resources
4. Bolt-on applications are typically used for back-office functions such as accounting and
human resources.
Ans: False
Response: Bolt-on applications typically allow ERP systems to incorporate front-office
applications such as supply chain optimization, customer relationship management, and sales
force automation.
5. One condition that must be met to establish a database orientation is that data must be stored
only once, in a way that all authorized decision makers can access the data.
Ans: True
6. As long as a system includes a database, it automatically meets the database orientation goal.
Ans: False
Response: Information may be stored at multiple levels of aggregation in multiple tables in a
database and would thereby violate the conditions needed to achieve the goal of database
orientation.
7. A best of breed ERP system is more likely than a single source ERP system to completely
satisfy the criteria for a database orientation.
Ans: False
Response: Best of breed implementations are more likely than single source ERP
implementations to store the same data in multiple places.
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8. Horror stories abound of ERP software implementations for which the business processes did
not match the software.
Ans: True
9. A semantic orientation in an enterprise system requires the use of an accounting module that
includes debits, credits, and accounts.
Ans: False
Response: A semantic orientation specifically precludes the use of artificial constructs such
as debits, credits, and accounts
10. Pattern-based system design facilitates automated reasoning by intelligent software interfaces
to the enterprise system.
Ans: True
Ans: True
12. Most ERP software-based systems are intentionally designed in conformance with the REA
pattern.
Ans: False
Response: ERP software-based systems do not seem to be intentionally built using any
particular pattern; instead they are built to support best practices at the task level.
Ans: False
Response: ERP systems facilitate intra-enterprise integration.
14. Best of breed enterprise system implementations install different ERP software applications
that best meet the needs of different areas of the enterprise.
Ans: True
Ans: False
Response: Most E-Commerce activity is B2B (business to business).
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16. Consideration of ERP systems and REA patterns for B2C electronic commerce is not
significantly different from B2C mail order or telephone order commerce.
Ans: True
17. In B2C electronic commerce, the primary differences enabled by electronic technology are
the breaking down of time, place, and form barriers.
Ans: True
18. Electronic data interchange (EDI) involves the exchange of data between enterprises in a
prescribed electronic format, usually through a value added network.
Ans: True
19. The REA enterprise ontology as introduced in this textbook is primarily externally focused,
because it links external agents to events, and is therefore an ideal solution for integrated
inter-enterprise systems.
Ans: False
Response: The REA enterprise ontology as introduced in this textbook is primarily inward
focused, intent on intra-enterprise integration. Strides are being made to extend the REA
ontology outward; however, those efforts are not described in detail in this textbook.
20. XBRL (extensible business reporting language) is a standard by which enterprises exchange
transaction level data, similar to electronic data interchange (EDI).
Ans: False
Response: XBRL is a tagging system tailored to financial statement line items. Such
information is aggregated, not transaction level detail.
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21. Which of the following typically enables ERP systems to incorporate front-office
applications such as supply chain optimization, customer relationship management, and sales
force automation?
A) Bolt-on applications
B) Single-source ERP implementations
C) Best-of-breed ERP implementations
D) Legacy applications
E) None of the above
Ans: A
Ans: D
23. On which orientations do ERP systems and the REA enterprise ontology match exactly?
A) Database orientation
B) Semantic orientation
C) Structuring orientation
D) They match exactly on all three orientations
E) They do not match exactly on any of the three orientations
Ans: E
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24. Which of the following is one of the conditions that must be met to satisfy a database
orientation?
A) Objects in the system's conceptual model should correspond as closely as possible to
objects in the underlying reality.
B) A pattern should be used to design the foundation for the enterprise system.
C) Data must be stored at their most primitive levels, at least for a defined time period.
D) The system should be designed according to industry best practices at the task level.
E) Data that are needed at different levels of aggregation for different decisions should be
stored in the system in both their disaggregated form and in their aggregated forms.
Ans: C
Ans: A
26. The goal that requires objects in a system's conceptual model to correspond as closely as
possible to objects in the underlying reality is called a
A) Database orientation
B) Semantic orientation
C) Structuring orientation
D) Correspondence orientation
E) Duality orientation
Ans: B
27. Which of the following is NOT one of the five major reasons companies implement
enterprise resource planning (ERP) systems?
A) To integrate financial information
B) To integrate customer order information
C) To standardize and speed up manufacturing processes
D) To reduce inventory
E) To maintain unique workflow processes
Ans: E
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Ans: D
29. Supplemental systems that are implemented along with ERP systems to accomplish some
functionality that is not present in the ERP systems are called
A) Best practices systems
B) Best of breed systems
C) Bolt-on applications
D) Reference applications
E) ERP modules
Ans: C
30. Which of these terms refers to the use of different ERP applications for different business
functions? For example, if a company decides to use SAP R/3 for manufacturing, Peoplesoft
for human resources, and Oracle Apps for all other functions, this is described as the use of
A) Process enterprise applications
B) Hodge-podge applications
C) Bolt-on applications
D) Best practice applications
E) Best of breed applications
Ans: E
Ans: C
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32. Which of the following statements best describes the origination and development of ERP
systems and the REA ontology?
A) ERP systems and the REA ontology both originated with an inward focus and have
recently shifted to an outwardly organized supply chain perspective.
B) ERP systems and the REA ontology both originated with an inward focus and have
remained inwardly focused.
C) ERP systems originated with an inward focus whereas the REA ontology originated with
an outwardly organized supply chain perspective.
D) The REA ontology originated with an inward focus whereas ERP systems originated with
an outwardly organized supply chain perspective.
E) ERP systems and the REA ontology both originated with an outwardly organized supply
chain perspective.
Ans: A
Ans: B
34. In B2C E-commerce, the primary differences as compared to non-electronic B2C commerce
are the breaking down of time, place, and form barriers. In this statement, the form barrier is
referring to
A) Consumer access to certain business information is no longer restricted to a limited set of
hours.
B) Consumers need not physically transport themselves to business locations to engage in
transactions with the businesses.
C) Consumers can shop from the comfort of their easy chairs with a few clicks of a mouse.
D) Shoppers can obtain product information and products from suppliers around the globe.
E) Business no longer need to be a particular size or type to attract and satisfy customers.
Ans: E
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35. The need to shift from an intra-enterprise view to include an inter-enterprise view in
designing information systems is driven primarily by
A) B2C E-commerce
B) B2B E-commerce
C) Both B2B E-commerce and B2C E-commerce
D) Although this need exists, neither B2C E-commerce nor B2B E-commerce drove this
need.
E) There was no need to shift from an intra-enterprise view to include an inter-enterprise
view in designing information systems.
Ans: B
Ans: E
Ans: A
Ans: D
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39. Which of the following statements best describes the comparative functions of XBRL and
ebXML?
A) XBRL and ebXML both have the same goal – to standardize the presentation of financial
statement line items.
B) XBRL has as its goal the facilitation of transaction level data exchange whereas ebXML
is a tagging system tailored to financial statement line items.
C) XBRL is a tagging system tailored to financial statement line items, whereas ebXML has
as its goal the facilitation of transaction level data exchange.
D) XBRL bases its tag wrappers on REA constructs whereas ebXML bases its containers on
chart of account codes
E) XBRL and ebXML both base their tag wrappers/containers on REA constructs.
Ans: C
Ans: A
41. What term is often used in business to describe activities or systems that are seen and used
only by people within enterprises and not by external business partners?
Ans: Back-office
Ans: The purpose of bolt-on applications is to enable ERP systems to incorporate front-
office applications such as supply chain optimization, customer relationship management,
and sales force automation.
43. Which feature used to compare ERP software and REA-based systems precludes the use of
accounting artifacts such as debits, credits, and accounts as base objects in the system?
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44. Which feature used to compare ERP software and REA-based systems demands the use of a
pattern as a foundation for the enterprise system to facilitate automated reasoning by
intelligent software interfaces to the system?
45. What term is used to describe an implementation that uses different ERP software
applications, each of which best meets the need of a different area of the enterprise?
Ans: Best-of-breed
46. What is the difference between intra-enterprise system integration and inter-enterprise system
integration?
Ans: Intra-enterprise integration combines data and systems within a single enterprise; inter-
enterprise integration combines data and systems across two or more enterprises.
47. What is the primary software mechanism by which Fortune 100 firms integrate data within a
single enterprise?
48. What are the two most general forms of electronic commerce, and which form is most e-
commerce activity?
Ans: The two forms are Business-to-Consumer (B2C) and Business-to-Business (B2B).
Most e-commerce activity is Business-to-Business.
49. What two technologies invented over a century ago are believed by many to be the advent of
e-commerce?
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Essay Questions
51. List the three orientations used in the textbook to compare some of the goals of ERP
software-based systems and REA-based systems. Explain what each orientation requires and
state the extent to which typical ERP systems meet the specified criteria.
Ans: The first orientation used to compare ERP and REA-based systems is the database
orientation, that is, the achievement of integrated enterprise-wide storage, maintenance, and
reporting of data needed for decision-making. This goal requires three conditions to be met.
First, data must be stored at their most primitive levels, at least for a defined time period.
Second, data must be stored only once, and in a way that all authorized decision makers can
access the data. Third, data must be stored to allow retrieval in various formats as needed for
different purposes. The extent to which these three conditions are achieved using ERP
software varies for different enterprises depending on whether they use single source ERP
software packages, whether they implement best-of-breed ERP solutions, whether they install
bolt-on applications in addition to their ERP software, and whether they implement the ERP
software enterprise-wide or only in some parts of the enterprises. The second orientation is a
semantic orientation, which requires objects in the system's conceptual model to correspond
as closely as possible to objects in the underlying reality and also precludes the use of
artificial constructs such as debits, credits, and accounts as base objects in the enterprise
system. Most ERP systems lack semantic orientation. Rather than tailoring the system to
match the business' reality, ERP system implementations require the business processes to be
changed to match the software. Virtually all ERP systems include a general ledger module
and maintain debits, credits, and accounts as base objects. The third orientation used to
compare ERP and REA-based systems is the structuring orientation, which demands the use
of a pattern as a foundation for the enterprise system. ERP systems do not seem to be
intentionally built using any particular pattern; instead they are built to support “best
practices” at the task level.
52. What are the five major reasons enterprises implement ERP systems?
53. What three barriers are broken down by B2C e-commerce? Explain how each is broken.
Ans: The three barriers broken down by B2C e-commerce are time, place, and form. The
time barrier is broken in that no longer is consumer access to certain business information
restricted to business hours; information may be posted to websites and made accessible 24
hours per day, 7 days per week, 52 weeks per year. The place barrier is broken in that
consumers do not need to physically transport themselves to business locations to engage in
transactions with the businesses. They can shop from the comfort of their easy chairs with a
few clicks of a mouse, and they can obtain product information and products from suppliers
around the world from whom they may not have been able to obtain information before the
advent of B2C e-commerce. The form barrier is broken in that businesses no longer need to
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be a particular form or size to attract and satisfy customers. A small enterprise that can't
afford a fancy physical storefront may be able to attract customers with a well-designed web-
based storefront.
54. Does B2C e-commerce create a need for enterprises to change their systems focus from an
intra-enterprise view to an inter-enterprise view? Why or why not?
Ans: B2C (business-to-consumer) e-commerce creates little apparent need to change the
focus of enterprise systems from an intra-enterprise view to an inter-enterprise view, because
most consumers do not have automated information systems that need to be seamlessly
integrated with the businesses' information systems.
55. Explain the basic considerations involved in inter-enterprise view integration to support
collaborative planning, forecasting, and replenishment (CPFR), using the REA enterprise
ontology as a starting point.
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