THE REA
MODEL
LEARNING OBJECTIVES
Recognize the economic foundations of the
resources, events, and agent (REA) model.
Understand the key differences between traditional
entity relationship modeling and REA modeling.
DONNA STROUPE
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.
THE REA MODEL
The REA Model is an accounting framework for
modeling an organization’s critical resources,
events, and agents and the relationships
between them.
ELEMENTS OF A REA MODEL
1. Resources - things of economic value to the organization
and are the objects of economic exchanges.
2. Economic Events - phenomena that effect changes
(increases or decreases) in resources.
3. Support Events - control, planning, and management
activities that are related to economic events but do not
directly effect a change in resources.
4. Agents - individuals within (internal agents) and outside
(external agents) the organization who participate in an
economic event.
DUALITY
The rationale behind an economic transaction is that
two agents each give the other a resource in exchange
for another resource. Each economic event is mirrored
by an associated economic event in the opposite
direction (the give event and receive event).
DEVELOPING A REA
MODEL
View modeling - database designer identifies and
models the set of data that individual users need to
make a decision or perform a task. The result of this
process is the ER Diagram. The REA approach uses
semantic modeling to construct an REA diagram.
DIFFERENCES OF ER DIAGRAM
VS REA DIAGRAM:
CLASSES OF ENTITIES
READ
three classes
ERD
(resources,
one class
events,
agents)
DIFFERENCES OF ER DIAGRAM
VS REA DIAGRAM:
ARRANGEMENT OF ENTITIES
ERD READ
determined by organized into
cardinality and constellations
readability by class
DIFFERENCES OF ER DIAGRAM
VS REA DIAGRAM:
SEQUENCING OF EVENTS
READ
ERD chronological
static sequence of
business
processes
DIFFERENCES OF ER DIAGRAM
VS REA DIAGRAM:
NAMING CONVENTIONS
READ
ERD nouns (R’s and
all nouns A’s) and verbs
(E’s)
CREATING AN
INDIVIDUAL
REA DIAGRAM
1. Identify the event entities.
include the two economic events: give and receive
activities that reduce and increase economic resources
in the exchange
may include support events, which do not change
resources directly
focus on Value chain events
2. Identify the resource entities.
each economic event must be linked to at least
one resource whose economic value will be
either reduced or increased
support events are also related to resources but
do not effect a change in the resource value
3. Identify the agent entities
Internal Agents
External agents
4. Determine associations and cardinalities
between entities.
CREATING AN
ENTERPRISE-WIDE
REA MODEL
1. CONSOLIDATE THE
1.
INDIVIDUAL MODELS
Individual models are consolidated or
linked together based on shared entities.
2. DEFINE THE PRIMARY KEYS,
FOREIGN KEYS, AND ATTRIBUTES.
Implementation into a working relational
database requires primary keys, foreign
keys and attributes in tables.
2. DEFINE THE PRIMARY KEYS,
FOREIGN KEYS, AND ATTRIBUTES.
Primary key - uniquely identifies an instance of an
entity (i.e., each row in the table)
Foreign key – the primary key embedded in the
related table so that the two tables can be linked
Attribute – a characteristic of the entity to be
recorded in the table
2. DEFINE THE PRIMARY KEYS,
FOREIGN KEYS, AND ATTRIBUTES.
Rules for Foreign Keys:
if 1 to 1 (1:1) association, either of the table’s primary
key may be the foreign key
if 1 to many (1:m) association, the primary key on
one of the sides is embedded as the foreign key on
the other side
if many to many (m:m) association, create a
separate linking table with a composite primary key
3. CONSTRUCT THE PHYSICAL
DATABASE AND PRODUCE USER VIEWS.
The database designer is now ready to create the
physical relational tables using software.
Once the tables have been constructed, some of
them must be populated with data.
Event tables must wait for business transactions
to occur before data can be entered.
The resulting database should support the
information needs of all users.
REA AND THE VALUE
CHAIN ANALYSIS
These are the activities that add value or
usefulness to an organization’s products
and services.
REA AND THE VALUE
CHAIN ANALYSIS
1. Primary Activities - create value
2. Support Activities - assist in the
achievement of the primary activities
ADVANTAGES
OF REA MODEL
DISCUSSION
1. Helps managers identify non-value added activities that
can be eliminated.
2. Storing both financial and nonfinancial data in the same central
database reduces multiple data collection, data storage, and
maintenance.
DISCUSSION
3. Detailed financial and nonfinancial business data supports
a wider range of management decisions.
4. Provides managers with more relevant, timely, and
accurate information.
THANK
YOU!
SEE YOU ON
YOUR FINALS
EXAM!
