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THE IMPLEMENTATION OF REA MODELS IN ACCOUNTING
Krishma Sohani
OCTOBER 30, 2017
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Introduction
The world of accountants goes through changes as it moves toward providing efficient and meaningful
opinions and advice to business professionals in the society. The Resource, Events, and Agents (REA) model is a
concept-based modeling tool, the primary purpose of which is to establish a structure for designing Accounting
Information Systems databases. The model was developed in 1982 by William McCarthy, who “built an
accounting system based on the primitive notions of entity and relationship sets,” (McCarthy, 555). McCarthy’s
vision to create the REA model was to diminish the dissension between business processes and the companies’
specified softwares. The conflict prior to 1980s was that accountants were having a difficult time establishing the
what their roles need to be and how to switch roles at appropriate times in designated organizations. With the use
of the REA model, both accounting and non-accounting decisions can be identified, captured, and inputted into a
central database that will provide useful information to all users in the organization. There are many variations
and concepts companies need to comprehend in order to prevent violation of business domain rules “and to adopt
the applications to changing requirements without the need to change the overall architecture,” (McCarthy and
Geerts, Page 6, 1993). The REA model was proposed by McCarthy to implement the idea of recording and
storing accounting information in a way where these details are available as resources in transaction details for the
organizations to make non-accounting related decisions. (Dunn and McCarthy, Page 3, 1995).
In this paper, the author will explore the implementation of the REA Model in Accounting practice and
explain how the implementation of this model has made a significant impact on the structure of their profession.
The utilization of the REA model enables accountants to make use of accounting resources to make
non-accounting decisions, implement changes in their roles as accountants of an organization, and build a solid
foundation for developing business development for nearly all business domains or organizations (Nakamura and
Johnson, Page 2, 1998). The implementation of REA models is important to accountants as this model is used by
business firms and organizations to develop a strong framework and establish their changing roles in their work
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practice. Accountants use this model to set goals for their workplace and prevent conflicts in their changing
responsibilities at their workplace.
Making Decisions with the REA Model
Decision making within any firm or business is a significant factor that allows the advancement and
future of the organization. The REA model was implemented primarily to develop a distinct relationship between
accountants and all users of the organization to make decisions and “enables and enhance interoperability,”
(Nakamura and Johnson, Page 3, 1998). The model has allowed to build high quality systems in many ways
through the three accounting models introduced: database orientation, semantic orientation, and structuring
orientation, (Nakamura and Johnson, Page 3, 1998). Figure 1 explains a summarized version of how all three
accounting models fit together under the REA Model. The outer circle is labeled as the Events Accounting
because all the articles thereunder fit this criteria of being accounting models that focus on events as the primary
ones and advise less aggregation than double entry bookkeeping. The next circle towards the center represents
those models that have a database orientation, but not a semantic or structuring. The third circle towards the center
stands for models that have a database and semantic orientation, but not structuring. The innermost circle
represents all three models and is labeled the REA accounting because REA is the only one model that possesses
all three orientations in one model.
The first model, database orientation, sets forth three main conditions that are necessary for all aspects of
the firm to record data: all of the data must be at their most primitive levels, all authorized members of the firm
must have access to the data, and that all data can be redeemed in various formats, if needed for any purposes.
(Dunn and McCarthy, Page 6 1995). This accounting model is useful since users cannot evaluate information that
is present in the database unless they fully understand the methods used to produce the information. Using the
database orientation can prevent users from collecting multiple files of data and consolidating it, improving
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efficiency within the organization. Sometimes, one particular form of data may be important to other users for a
different purpose, so having this model is an advantage to all.
The second model, semantic orientation, revolves around the idea that business organizations should
record their information in a way where it is beneficial to all users of the organization, not just accountants. All
business-related information should be put into one database that is like a one-stop shop. In this model, all users
