RE

A
MODE
LGROUP
3
 CONTE
01 NTABOUT REA MODEL
ECONOMIC RESOURCES
02
EC O N O M IC
03
EV EN TS ECONOMIC
04
AGENTS
05
C LASSIC AC C O UN TIN G
06 REC O RDS IN A NON-
REA SYSTEM
EV EN T DATABASE
IN AN REA
REA
MODEL
REA is an accounting framework for modeling an
organization critical resources, events, and agents
(REA) and the relationships between them.

Once specified, both accounting and nonaccounting

data about these phenomena can be
identified, captured, and stored in a relational
database.
REA
MODEL
From t his re p osit ory , use r vie w s c a n b e c onst ruc t e d t ha t
m e e t t h e needs of all users in t h e
orga niza t ion. The a va ila b ilit y of m ult ip le vie w s
a llow s flexible use of t r a n s a c t i o n d a t a and
p e rm it s t he d e ve lop m e nt of AIS t ha t p rom ot e , ra t he r
t ha n inhibit, integration.
TheREA m od e l w a s p rop ose d in 19 8 2 a s a t he ore t ic a l
m od e l for accounting.
Ad va nc e s in d a t a b a se t e c hnology ha ve f oc use d re ne w e d
a t t e n t i o n on REA as a p r a c t i c a l
a l t e r n a t i v e to t h e classic accounting framework.
The f ollow ing sum m a rize s t he k e y e le m e nt s of t he REA
models.
 RESOURCE
S
Economic resources are t h e assets of t h e organization.
The y a r e d e f ine d a s ob je c t s t ha t a r e b ot h sc a r c e a nd und e r t he
c o n t r o l of t h e e n t e r p r i s e .
This d e f init ion d e p a r t s f r om t he t r a d it iona l m od e l b e c a use it
d oe s not include AR.
An a c c ount r e c e iva b le is a n a r t if a c t r e c or d use d sim p ly t o st or e a nd
transmit data.
Be c a use it s not a n e sse nt ia l e le m e nt of t he sy st e m , it d oe s not ne e d
to be i n c l u d e d in t h e
database.
Inst e a d , AR va lue s a r e d e r ive d f r om t he d if f e r e nc e b e t w e e n sa le s
t o c u s t o m e r s and t h e cash
r e c e i v e d in p a y m e n t of sales.
 EVENT
S
Ec onom ic e ve nt s a r e p he nom e na t ha t a f f e c t
c ha nge s in resources.
The y c a n r e sult f r om a c t ivit ie s suc h a s p r od uc t ion,
exchange, c o n sumption, and d i s t r i b u t i o n .
Ec onom ic e ve nt s are t he c r it ic a l inf or m a t ion
e l e m e n t s of t h e a c c o u n t i n g s y s t e m and should be
c a p t ur e d in a highly d e t a ile d f or m t o p r ovid e a
r ic h d a t a b a s e .
 AGENT
S
Ec on om ic a ge n t s a r e in d iv id u a ls a n d d e p a r t m e n t s t h a t p a r t ic ip a t e in
an economic event.
Th e y a r e p a r t ie s b ot h in sid e a n d ou t sid e t h e or ga n iza t ion w it h
d i s c r e t i o n a r y p o w e r to use or
dispose of e c o n o m i c resources.
Ex a m p le s of a ge n t s in c lu d e sa le s c le r k s, p r od u c t ion w or k e r s,
sh ip p in g clerks, c u s t o m e r s , and
vendors.
Th e REA m od e l r e q u ir e s t h a t a c c ou n t in g p h e n om e n a b e c h a r a c t e r ize d in
a manner consistent
w i t h t h e d e v e l o p m e n t of m u l t i p l e user views.
Bu sin e ss d a t a m u st n ot b e p r e f or m a t t e d or a r t if ic ia lly c on st r a in e d a n d
should r e f l e c t all r e l e v a n t
a s p e c t s of t h e unde rl yi ng e c o n o m i c e v e n t s .
 AGENT
S
As su c h , REA p r oc e d u r e s a n d d a t a b a se s a r e st r u c t u r e d a r oun d
events rather than accounting
a r t if a c t s su c h a s jou r n a ls, le d ge r s, c h a r t s of a c c oun t s, a n d
d o u b l e - e n t r y accounting.
Un d e r t h e REA m od e l, b u sin e ss or ga n iza t ion s p r e p a r e f in a n c ia l
s t a t e m e n t s d i r e c t l y from t h e
event database.
Th e f ollow in g sa le s a n d c a sh r e c e ip t s e ve n t s f or a h y p ot h e t ic a l
r e t a i l e r can be used to i l l u s t r a t e
t h e i n h e r e n t d i f f e r e n c e s b e t w e e n classic and REA accounting:
 AGENT
S
Se p t . 1 : Sold 5 unit s of p r od uc t X 2 1 @ $ 3 0
p e r unit and 10 units of p r o d u c t Y 33 @ $
2 0 per unit
t o c ust om e r Sm it h ( Tot a l sa le = $ 3 5 0 ) . The unit
cost of t h e i n v e n t o r y is $ 16 and $ 12 ,
r e s p e c t i v e l y ( To t a l CGS = $ 2 0 0 ) .
Se p t . 3 0 : Re c e ive d $ 2 0 0 c a sh f r om c ust om e r
Smith on a c c o u n t , c h e c k n u m b e r 451 .
In flat-file or non-REA database systems, the two events would be recorded
in a set of classic accounts like those shown in Figure 1-14.

This involves summarizing the events to accommodate the account structure. However,
the details of the transactions are not captured under this approach.
An REA accounting system would capture these transactions in a series of relational database tables that
emphasize events rather than accounts.
This is illustrated in Figure 1-
15.
Each table deals with a separate aspect of the transaction.
Dat a pert aining t o t he cust omer, t he invoice,
specific i t ems sold, and so on can thus be
captured
for multiple uses and users.
The t ables of t he dat abase are l inked via common at t ribut es
called
embeddedprimary
f or ei gn keys
k e y s ( P)
Ad da and
that
litt permit integration.
le

I n cont rast , t he f i les in t he t radit ional syst em are

bit of bo dy te xt
( F K )
independent of each other and thus cannot
accommodate such detailed data gathering.
As a result, traditional systems must summarize event data at the loss
of potentially important
facts.
Traditional accounting records including journals, ledgers, and charts of accounts
do not exist as
physical files or tables under the REA model.
For financial reporting purposes, views or images of traditional accounting records
are
constructed from the event tables.
For example, the amount of Smith's account receivable balance is derived
from total sales
[(Quant sold * Sale price) less cash received (Amount) = 350 - 2 0 0 = 150].

If necessary or desired, journal entries and general ledger amounts can also be
derived from
these event tables.
For example, the Cost-of-Goods-Sold control account balance
is (Quant sold * Unit cost)
summed for all transactions for the period.

REA is a conceptual model, not a physical system.

Many of its tenets, however, are found within advanced

database systems.

The most notable application of REA philosophy is seen in the

proliferation of ERP systems,
which are discussed in the following section.
 GROUP
3
THANK
YOU FOR
Lamsen, Alaiza Mae
Leonidas, Grace LI STENI N
Licda, Gabriel
Manansala, Judy Ann
Morales, Jeune G!