Chapter 10—The REA Approach to Business Process Modeling

TRUE/FALSE

False 1. According to the REA philosophy, information systems should support only the needs of
accounting professionals.

True 2. Many believe that the accounting profession should shift away from financial statement reporting
toward providing information that assists decision-making.

True 3. Modern managers need both financial and nonfinancial information that traditional GAAP-based
accounting systems are incapable of providing.

False 4. The REA model is an alternative accounting framework for modeling an organization’s critical
resources, events, and accounts.
False 5. In REA, resources are assets that include accounts receivable.

True 6. REA modeling embraces two classes of events: economic events and support events.

True 7. At least two REA agents participate in each an economic event.

False 8. The events depicted on an REA diagram are transformed into computer processes while the
resources and agents become relational database tables.

False 9. Under the REA approach support events may directly affect a change in resources.

False 10. An example of an economic event is checking customer credit prior to processing a sale.

False 11. The duality association in an REA diagrams signifies that each economic transaction involves two
agents.
True 12. A difference between ER and REA diagrams is that ER diagrams present a static picture of the
underlying business phenomena.

True 13. ER diagrams always label entity names in the singular noun form.

False 14. When modeling M:M associations, it is conventional to include link tables in the REA diagram so
that the model reflects closely the actual database.

True 15. Where a 1:M association exists between tables, the primary key of the 1 side is embedded in the
table of the M side.

False 16. The REA approach generates an information system based on a single holistic user view.

False 17. Four basic forms of cardinality are possible: zero or one (0,1), one and only one (1,1), one or
many (1,M), and many and only many (M,M).

False 18. When one side of a 1:1 association has a minimum cardinality of zero, the primary key of the
table with the 0,1 cardinality should be embedded as a foreign key in the table with the 1,1 cardinality

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 True 19. Most companies implementing an REA model also maintain a traditional general ledger system
for financial reporting.

True 20. Modeling economic transactions under the REA approach always includes depicting both internal
and external agents.

MULTIPLE CHOICE

B 1. Which statement is NOT true? REA resources are:

a. assets
b. affected by support events
c. scarce
d. under the control of agents

D 2. The concept of duality means that a REA diagram must consist of:
a. two events, one of them economic the other support
b. two agents, one of them internal and the other external
c. two resources, one increased and the other decreased by the same event
d. none of the above

D 3. In a REA diagram each economic event is always

a. linked to at least two resource entities
b. linked to two external agents
c. linked to another economic event
d. linked to two internal agents

D 4. Which of the following are characteristics of economic agents?

a. They participate in economic events, but do not assume control of the resources
b. They are employees of the company whose system is being modeled
c. They participate in economic events, but not in support events
d. All of the above

D 5. Which of the following is true?

a. REA diagram entities are arranged in constellations by entity class.
b. ER diagrams present a static picture of the underlying business phenomena
c. Events entity names in REA diagrams are in the verb form
d. All of the above are true statements

C 6. The ‘R’ in REA stands for

a. ratios
b. relationships
c. resources
d. reserves

A 7. The ‘E’ in REA stands for

a. events
b. estimates
c. economics

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 d. entities

D 8. The ‘A’ in REA stands for

a. assets
b. apportionment
c. allocation
d. agents

B 9. Which of the following events would be least likely to be modeled in a REA diagram
a. customer inquires
b. posting accounts payable
c. receiving cash
d. sales to a customer

B 10. All of the following are examples of economic events except

a. receiving raw materials from a supplier
b. checking a customer’s credit prior to processing a sales order

c. disbursing cash for inventories received

d. shipping product to a customer

D 11. Which types of entities are included in REA diagrams?

a. support events
b. economic events
c. internal agents
d. all of the above

A12. Which of the following associations would most likely describe the relationship between an internal agent and an
economic event:
a. 1:M
b. 1:1
c. 0:M
d. none of the above

D13. Which of the following statement is correct?

a. The REA model requires that phenomena be characterized in a manner consistent with the
development of a single user view.
b. The REA model requires that phenomena be characterized in a manner consistent with the
development of a selected user view.
c. The REA model requires that phenomena be characterized in a manner consistent with the
development of a unique user view.
d. The REA model requires that phenomena be characterized in a manner consistent with the
development of a multiple user view.

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 C 14. Which of the following associations requires a separate link table?
a. 1:1
b. 1:M
c. M:M
d. none of the above

D15. Which of the following tables would most likely have a composite key?
a. Take Order.
b. Cash
c. Ship Product
d. Iventory Ship Link

D16. When developing an REA model:

a. Accounting artifacts are represented as support events
b. The same resource is both increased and decreased by the duality association
c. Link tables are explicitly depicted
d. events are organized in sequence of occurrence

A17. In an REA model, events are described from the perspective of

a. the organization
b. the designer
c. the user
d. the customer

D18. Which of the following is NOT an example of an economic event?

a. Ship goods
b. Receive goods
c. Get employee time
d. prepare cash disbursements voucher

C 19. When assigning foreign keys in a 1:M association

a. The primary key of each table should be embedded as a foreign key in the related table

b. The primary key on the ( 0, M) side of the relation should be embedded as the foreign key on the
(1,1) side.

c. The primary key on the ( 1, 1) side of the relation should be embedded as the foreign key
on the (0, M) side.

d. None of the above is true

C 20. When assigning foreign keys in a 1:1 association:

a. The primary key of each table should be embedded as a foreign key in the related table
b. The primary key on the ( 0, 1) side of the relation should be embedded as the foreign key
on the (1,1) side.
c. The primary key on the ( 1, 1) side of the relation should be embedded as the foreign key
on the (0,1) side.
d. None of the above is true

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