Chapter 10

The REA
Approach to
Database
Modeling

James A. Hall, Accounting Information Systems, 10th Edition. © 2019

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Learning Objectives
• Recognize the economic foundations of the resources,
events, and agents (REA) model.
• Understand the key differences between traditional entity
relationship modeling and REA modeling.
• Understand the structure of an REA diagram.
• Be able to create an REA diagram by applying the view
modeling steps to a business case.
• Be able to create an entity-wide REA diagram by applying
the view integration steps to a business case.

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 The REA Approach
• A user view is the set of data that a particular user needs
to achieve his or her assigned tasks.
• Semantic models are models that capture the
operational meaning of the user’s data and provide a
concise description of it.

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THE REA MODEL
• The REA model is an alternative accounting framework
for modeling an organization’s critical resources, events,
and agents, and the relationships between them.
• The REA diagram is a diagram consisting of three entity
types (resources, events, and agents) and a set of
associations linking them.
• Elements of an REA Model
• RESOURCES: Resources are the assets of an organization.
• EVENTS: Economic events are phenomena that effect changes
(increases or decreases) in resources. Stock flow are economic
events that effect changes (increases or decreases) in resources.
Support events are control, planning, and management activities
that are related to economic events but do not effect a change in
resources.

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THE REA MODEL (continued)
• Elements of an REA Model (continued)
• Agents are individuals and departments that participate in an
economic event. An internal agent is an economic agent
inside the organization with discretionary power to use or
dispose of economic resources. An external agent is an
economic agent outside the organization with discretionary
power to use or dispose of economic resources.
• Duality is an economic exchange represented by a give event
and a corresponding receive event. A give event is an
economic event mirrored by another event in the opposite
direction. A receive event is an economic event mirrored by
another event in the opposite direction. These dual events
constitute the give event and receive event of an economic
exchange.

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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 Basic REA Model

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 REA Model Showing Duality of a Give and
Receive Exchange

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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 Examples of Give and Receive Events

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 Developing an REA Model
• View modeling determines the associations between
entities and document them with an ER diagram.
• The REA approach uses semantic modeling to construct
an REA diagram.

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DIFFERENCES BETWEEN ER AND REA
DIAGRAMS
• Entities
1. Entities in ER diagrams are of one class, and their proximity to
other entities is determined by their cardinality and by what is
visually pleasing to keep the diagrams readable.
2. Entities in an REA diagram are divided into three classes
(resources, events, and agents) and organized into
constellations by class on the diagram.
• Sequencing of Events
1. ER diagrams present a static picture of the underlying
business phenomena. Relationships between data are shown
through cardinality and associations, but the sequence of
activities that determine the cardinality and associations is not
clearly represented.
2. REA diagrams are typically organized from top to bottom within
the constellations to focus on the sequence of events.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10
DIFFERENCES BETWEEN ER AND REA
DIAGRAMS (continued)
• Naming Conventions
1. In ER diagrams, entity names are always represented in the
singular noun form.
2. REA modeling applies the singular noun form rule when
assigning names to resource and agent entities. Event entities
are given verb (action) names.

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Arrangement of Entities in an REA Diagram

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VIEW MODELING: CREATING AN
INDIVIDUAL REA DIAGRAM
• Step I. Identify the Event Entities
• VERIFY AVAILABILITY
• TAKE ORDER
• SHIP PRODUCT
• RECEIVE CASH
• INVALID ENTITY TYPES: Value chain events are the activities
that use cash to obtain resources and employ those resources
for revenues.
• Step 2. Identify the Resource Entities
• Step 3. Identify the Agent Entities

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VIEW MODELING: CREATING AN
INDIVIDUAL REA DIAGRAM (continued)
• Step 4. Determine Associations and Cardinalities between
Entities
• Association is the relationship among record types.
• Cardinality is the numerical mapping between entity
instances.
• Cardinality between the verify availability and take order
entities
• Cardinality between the take order and ship product entities
• Cardinality between the ship product and receive cash entities
• Cardinality between the cash and receive cash entities
• Many-to-many associations

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Arrangement of Events Entities in Order of
Occurrence

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 REA Model Showing Events and Related
Resources and Agents

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 Alternative Techniques for Representing
Cardinality

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 Associations and Cardinality in an REA
Diagram

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 Link Tables in an REA Diagram

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View Integration: Creating an Enterprise-
Wide REA Model
• View integration is combining the data needs of all users
into a single schema or enterprise-wide view.
• The view integration process involves three basic steps:
1. Consolidate the individual models.
2. Define primary keys, foreign keys, and attributes.
3. Construct the physical database and produce user views.

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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STEP 1. CONSOLIDATE THE INDIVIDUAL
MODELS
• Purchases and Cash Disbursements Procedures
• Payroll Procedures
• Merge Individual REA Diagrams

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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 REA Diagram of Purchases and Cash
Disbursements Procedures

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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 REA Diagram of Payroll Procedures

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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 Integrated REA Diagram

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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STEP 2. DEFINE PRIMARY KEYS,
FOREIGN KEYS, AND ATTRIBUTES
• Rules for Primary Keys and Attributes
• Rules for Foreign Keys
• Keys in 1:1 Associations
• Keys in 1:M Associations
• Keys in M:M Associations
• Normalized Tables
• Third normal form (3NF) is the normalization that occurs by
dividing an unnormalized database into smaller tables until all
attributes in the resulting tables are uniquely and wholly
dependent on (explained by) the primary key.

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 Tables, Keys, and Attributes in Apex
Databases

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 Tables, Keys, and Attributes in Apex
Databases (continued)

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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STEP 3. CONSTRUCT THE PHYSICAL
DATABASE AND PRODUCE USER VIEWS
• Producing Financial Statements and Other Accounting
Reports
• PRODUCING MANAGEMENT REPORTS FROM REA
TABLES

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Calculating Accounting Numbers from REA
Tables

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Reproducing Journal Entries from REA Tables

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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 Inventory Status Report

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 Constructing a Management Sales Report
from REA Tables

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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 Customer Inquiry Report

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REA AND VALUE CHAIN ANALYSIS
• Modern decision makers need information systems that
help them look beyond their internal operations to those of
their trading partners.
• Value chain analysis distinguishes between primary
activities and support activities: primary activities create
value; support activities assist in the achievement of the
primary activities.

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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REA COMPROMISES IN PRACTICE
• The advantages to operational efficiency, systems
integration, and value chain analysis have drawn great
attention to REA as a theoretical model for system and
database design.
• Enterprise resource planning systems exemplify the
successful integration of event-based plans and traditional
database designs within a single system.

James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35