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CHAPTER 19
SPECIAL TOPICS IN REA MODELING
Instructor’s Manual
Learning Objectives:
1. Develop REA data models for a variety of organizations.
Questions to be addressed in this chapter:
1. How do you model the revenue cycle activities of a business that
provides services, such as computer or automotive repairs? What
about a business that rents items instead of selling them?
Introduction
This chapter extends the basic concepts to a variety of other types of
businesses and transaction cycles.
Additional Revenue Cycle Modeling Topics
Figure 19-1 presents a revenue cycle REA diagram that includes
manufacturers, distributors, and other types of businesses.
Additional Events
Learning Objective One
Develop REA data models for a variety of
organizations.
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Figure 19-1 separates the warehouse activity of filling an order from
the activity of actually shipping or delivering that order to the
customer.
The maximum cardinality from the Fill Customer Order event to the Take
Customer Order event is 1.
The relationship between the Fill Customer Order and Ship Order events
is 1:1.
The minimum cardinalities reflect the fact that the two events are
sequential.
Attribute Placement
Table 19-1 shows that the primary key of the shipping event is the
shipment number.
The primary key for Call on Customer is the Call Number. The Call
Number is also the foreign key for Take Customer Order.
Note that the unit cost for each item is an attribute in the
Inventory Table.
The unit list price is an attribute in the Inventory Table and
the Inventory-Take Customer Order Table.
New REA Feature—Employee Roles
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The REA diagram in Figure 19-1 provides the job roles of employees.
The salesperson is involved in the Call on Customer and Take
Customer Order events.
The cashier is involved in the Receive Cash event.
Sale of Services
Now we will switch from selling a product to providing a service.
Figure 19-3 provides an REA diagram of a partial revenue cycle for a
service type business.
The Service Table would provide a row for each type of service.
For example, an automotive repair shop would have individual rows
for such services as oil changes and brake replacement.
For another example, a CPA firm could include rows for tax
services, audits, consulting services, and financial planning.
The firm could also breakdown audits into financial statement,
compliance, and operational audits.
Digital Assets
What about digital assets? Companies sell software, music, or digital
photographs over the Internet.
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These types of companies only sell the copies, but not the actual
resource.
You would still need an Inventory Table so that customers
can see what products are available for sale.
Rental Transactions
Some businesses rent items rather then selling them. This involves only
the temporary use of a resource. Thus, the rental transaction involves
receipt of the returned item and receipt of cash.
Figure 19-5 provides an REA diagram for a partial revenue cycle for
rental transactions.
Figure 19-5 shows that the Rent Item event is linked to both the
Receive Cash and Return Item events.
The minimum cardinality of 1 reflects that customers normally pay
first. The maximum cardinality is N because there may be additional
charges when an item is returned.
Additional Expenditure Cycle Modeling Topics
Figure 19-2 presents an expanded expenditure cycle REA diagram that
includes internal requests for purchases. Table 19-2 on page 629
provides the corresponding tables.
Additional Events
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The cardinality pair from the Request Inventory event to the Order
event has a minimum cardinality of 0 and maximum of N.
The 0 minimum reflects the fact that the purchase request occurs
before the purchase order.
Attribute Placement
There is only one attribute, Quantity Requested, in the new table,
Inventory-Request_Inventory.
New REA Feature—M:N Agent–Event Relationships
Figure 19-2 depicts the relationship between the Receive Inventory
event and employees as being M:N. This reflects the fact that many
New REA Feature—Locations
The locations involved include
1. The activity or department where the order was requested
2. The purchasing department where the order was placed
The cardinality pair from the Warehouse to the Inventory resource has a
0 minimum and N maximum.
New REA Feature—Relationships Between Resources and Agents
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Figure 19-2 includes a relationship between the Inventory resource
entity and the Supplier agent entity.
Acquisition of Intangible Services
Organizations acquire various intangible services, such as Internet
access, telephone service, and utilities.
Rental Transactions
Many organizations rent office spaces and warehouses.
Information about the payment event is included in the Disburse Cash
table.
Multiple Choice 1
The relationship from Take Customer Order to Salesperson is a maximum
cardinality of _____ minimum cardinality of _____.
a. 1; N
b. 0; N
c. M; N
d. 1; 1
Multiple Choice 2
The Picking Ticket Number is the primary key in the __________ table
and the foreign key in the __________ table.
Multiple Choice 3
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In the REA diagram for services, the minimum cardinality from the Sales
event to the Inventory Resource is _____ and the minimum cardinality
from the Sales event to the Services entity is _____.
a. 0; 0
Multiple Choice 4
For rental transactions, the primary key for the rental inventory table
would be a(n) __________.
a. inventory line number
b. part number
c. serial number
d. A and C
Multiple Choice 5
In the expenditure cycle, the relationship between the Receive
Inventory event and receiving employee is
a. M:N
Multiple Choice 6
In the expenditure cycle, the Purchase Order Number primary key in the
Order Inventory table is also the primary key in the
Production Cycle REA Model
Figure 19-6 provides a partial REA diagram for the Production Cycle.
Table 19-3 provides the corresponding tables.
There are four main events in a production cycle REA diagram:
1. Issuance of raw materials
Learning Objective Two
Develop REA data models for the HR/payroll,
manufacturing and capital assets transaction
cycles.
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4. Production of new finished products, represented by the work-in–
process event
Additional Entities—Intellectual Property
Figure 19-6 includes three special types of resource entities; 1) the
Bill of Materials, 2) the Job Operations List and 3) the Machine
Operations List.
The Job Operations List has relationships with Perform Job
Operations event and Finished Goods Inventory resource.
The cardinality relationship from Job Operations List to
Perform Job Operations is a minimum of 0 and maximum of N.
The cardinality relationship from Job Operations List to
Finished Goods Inventory is a minimum of 1 and a maximum of
1.
Note that Figure 19-6 also includes an entity titled, “Employee Time.”
Production Cycle Events
Data about actual raw materials used in production is stored in the Raw
Materials Issuance entity.
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Note that the Machine Operations event is not used to record
depreciation.
Figure 19-6 models the relationships between the Job Operations event
and the Job Operations List entity, and between the Machine Operations
event and the Machine Operations List entity, as being 1:N.
New REA Feature—Relationships Between Agents
There is a 1:N relationship between employees and supervisors. This
reflects the fact that each employee is assigned to a specific
supervisor and fact that many employees are assigned to one supervisor.
Multiple Choice 7
Which main event is not included in the production cycle REA diagram?
a. Issuance of raw materials
b. Allocation of factory overhead
c. Use of machinery and equipment in production
d. All of the above
e. A and C
Multiple Choice 8
For the production cycle, the Equipment ID number primary key in the
Equipment table is also the foreign key in the __________ table.
Combined HR/Payroll Data Model
Figure 19-7 integrates the payroll and HR activities.
The Time Worked event is necessary to calculate payroll. The Time Used
event is used for cost accounting, to properly assign labor costs.
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All other events represent HR activities.
HR Cycle Entities
The Employee entity is linked to almost every other entity in the
diagram.
The Training event entity represents the various workshops, training
programs, and other opportunities provided for employees to develop and
maintain their skills.
The relationship between the Employees and Training entities is M:N.
The relationship between the Recruiting event and Job Applicants is
modeled as being M:N
The Interview event stores detailed data about each job interview. It
is linked to the Hire Employees event in a 1:N relationship.
Tracking Employees’ Time
It is instructive to compare the information provided by the Time Used
event to that provided by linking specific business events to the
employee agent who performed that task.
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How much time did a particular salesperson spend calling in
customers, as opposed to providing customer service support via
the telephone?
Financing Activities Data Model
Figure 19-8 provides a partial financial activities’ REA diagram.
The event Issue Debt is connected to the Cash resource entity. It is
often modeled as a separate event entity because it contains attributes
different from those associated with cash receipts that arise from the
Sales event.
Usually, the organization writes one check for the total amount of
interest owed and sends that to the transfer agent. The transfer agent
then distributes individual checks to each credit holder.
In our example, the company would send $125,000 to the transfer
agent for the first quarter payment on the $10,000,000 bonds.
The transfer of funds would be recorded as one row in the
Disburse Cash table.
Most companies do not deal direct with stockholders.
Figure 19-8 shows that both types of equity transactions involve
participation by an employee (the treasurer) and the external transfer
agent.
Multiple Choice 9
The relationship between the Skills and Training entities is
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a. M:N
b. 1:1
c. 1:N
d. 0:1
Multiple Choice 10
The _________ in the financing activities REA diagram contains data
about the aggregate amount received from issuing debt instruments.
a. Transfer Agent
b. Issue Debt
c. Disburse Cash
d. None of the above