CHAPTER 17
DATABASE DESIGN USING THE REA DATA MODEL
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
17.1 Why is it not necessary to model activities such as entering information about
customers or suppliers, mailing invoices to customers, and recording invoices
received from suppliers as events in an REA diagram?
The REA data model is used to develop databases that can meet both transaction
processing and management analysis needs. Only events that either (1) directly change
the quantities of resources, (2) represent commitments to future exchange events, or (3)
17.2 The basic REA template includes links between two events and links between events
and resources and between events and agents. Why do you think the basic REA
template does not include direct links between (a) two resources, (b) two agents, or
(c) between resources and agents?
17.3 How can REA diagrams help an auditor understand a client’s business
processes?
An REA diagram presents a model of the company’s database. Included in the model is a
representation of all the tables contained in the database as well as all of the relationships
that exist between the tables within the database. These tables and relationships reflect
17.4 Which parts of Figure 17-6 would accurately depict almost every organization’s
revenue cycle? Which parts would change?
many.
17.5 What is the relationship between the things that would be represented as resources
in an REA diagram and the different categories of assets found on an organization’s
balance sheet? (Hint: Are there any assets that would not be modeled as resources?
17.6 How would accounts payable be reflected in an REA diagram? Why?
17.7 What are the five stages of the database design process? In which stages should
accountants participate? Why?
17.8 What is the difference between an Entity-Relationship (E-R) diagram and an REA
diagram?
SUGGESTED ANSWERS TO THE PROBLEMS
17.1 Joe’s is a small ice-cream shop located near the local university’s baseball field.
Joe’s serves walk-in customers only. The shop carries 26 flavors of ice cream.
Customers can buy cones, sundaes, or shakes. When a customer pays for an
individual purchase, a sales transaction usually includes just one item. When a
customer pays for a family or group purchase, however, a single sales transaction
includes many different items. All sales must be paid for at the time the ice cream is
served. Joe’s maintains several banking accounts but deposits all sales receipts into
its main checking account.
Draw an REA Diagram, complete with cardinalities, for Joe’s revenue cycle,.
17.2 Joe, the owner of the ice-cream shop, purchases ice cream from two vendors. Over
the years, he has developed good relationships with both vendors so that they allow
Joe to pay them biweekly for all purchases made during the preceding two-week
period. Joe calls in ice-cream orders on Mondays and Thursdays. The orders are
delivered the next day. Joe buys ice-cream toppings from one of several local stores
and pays for each such purchase at the time of sale with a check from the company’s
main checking account.
Draw an REA Diagram, complete with cardinalities, for Joe’s expenditure cycle.
17.3 Sue’s Gallery sells original paintings by local artists. All sales occur in the store.
Sometimes customers purchase more than one painting. Individual customers must
pay for purchases in full at the time of sale. Corporate customers, such as hotels,
however, may pay in installments if they purchase more than 10 paintings. Although
Sue’s Gallery has several bank accounts, all sales monies are deposited intact into
the main checking account.
Draw an REA Diagram for the gallery’s revenue cycle. Be sure to include
cardinalities.
17.4 Sue’s Gallery only purchases finished paintings (it never commissions artists). It
pays each artist 50% of the agreed price at the time of purchase, and the remainder
after the painting is sold. All purchases are paid by check from Sue’s main checking
account.
Draw an REA Diagram, complete with cardinalities, of the gallery’s expenditure
cycle.
17.5 Develop a data model of Fred’s Train Shop’s expenditure cycle activities related to
the acquisition of office equipment and other fixed assets. Fred sometimes orders
multiple pieces of equipment. Vendors usually ship the entire order, but sometimes
are out of stock of some items. In such cases, they immediately ship to Fred what
they have in stock, and then send a second shipment when they obtain the other
items. Conversely, several orders placed within a short time period with the same
vendor might be filled with one delivery. Assume that Fred makes installment
payments for most fixed-asset acquisitions, but occasionally pays for some
equipment in full at the time of purchase.
Draw an REA Diagram of your data model. Be sure to include cardinalities.
17.6 Provide an example (in terms of companies with which you are familiar) for each of
the business situations described by the following relationship cardinalities:
a.
b.
c.
d.
e.