The REA Approach to

Database Modeling
 Resources, Events, Agents
Model
 An accounting framework for modeling
an organization’s critical resources,
events, agents and the relationships
between them.
 Basic REA Model
Participates External
Economic
Agent
Stock
Economic Flow Economic
Resource Event
Internal
Duality Participates
Economic
Agent
Elements of an REA Model

Resource
Events
s

Agents Duality
Elements of an REA Model

Resources
Things of economic value to the
organization
Both scarce and under the control of
the enterprises
Either increased or decreased by the
exchange
Elements of an REA Model

Events

Economi Support
c Events Events
Elements of an REA Model

Events

Phenomena
that effect Support
changes in Events
resources
Elements of an REA Model

Events

Include
control,
Economi planning and
c Events management
activities
Elements of an REA Model

Agents
 Individuals and departments
 Participate in events
 Can be inside or outside the
organization
Elements of an REA Model

Duality

Give Receive
Event Event
REA Model Showing Duality of a
Give and Receive Exchange Participates
External Agent

Outflow Give Economic

Resource A Event

Participates
Internal Agent
Give
Duality
Activity

Receive External Agent

Participates
Activity Receive
Inflow
Resource B Economic
Event
Participates
Internal Agent
 Differences between ER and
REA Models
ER REA
Class of Entities One class Three classes

Arrangement of Entities Determined by cardinality Organized into

and readability constellations by class

Sequencing of events Static Chronological sequence of

business processes

Naming of events All nouns Nouns (R’s and A’s) and

verbs (E’s)
View Modeling: Creating An
Individual REA Diagram
The Process involves the following steps:
 Identify the event entities
 Identify the resource entities
 Identify the agent entities
 Determine associations and cardinalities
between entities
 Step 1: Identify the Event
Entities
 Identify the events that are to be
included in the model.
 Focus on value chain events.
Arrangement of Events Entities
in Order of Occurrence
Events
Verify Availability
Order
Take Order of
Events
Ship Product

Receive Cash
Step 2: Identify the Resource
Entities
 Identify the resources impacted by the
events in step 1.
 Each event must link to at least one
resource.
REA Model Showing Events and Related Resource and
Agents
Resources Events Agents
Customer Service
Verify Clerk
Inventory
Availability Customer

Inventory Customer
Take Order
Sales Representative

Ship Shipping Clerk

Inventory
Product Customer

Receive Customer
Cash Cash Receipts
Cash
Clerk
 Step 3: Identify the Agent
Entities
 Each economic event entity in an REA
diagram is associated with at least two
agent entities.
• Internal Agent
• External Agent
 Step 4: Determine Associations
and Cardinalities between Entities
 Association – reflects the nature of the
relationship between two entities.
 Cardinality – the degree of association
between the entities.
 Cardinality reflects the business rules
that are in play for a particular
organization.
Alternative Techniques for Representing Cardinality
Alternative 1

Associatio
Entity A n Entity B

Alternative 2

1,1 Associatio 0,M

Entity A n Entity B

Alternative 3

1 Association M
Entity A Entity B
Associations and Cardinality in an REA Diagram
Customer
Respond to
Services Clerk
Customer
Verify Availability
Review Items
Available Request
Related Customer
to
Places Order
Reserve Process
Order Sales
Inventory s Take Order
Representative

Causes Ships Shipping Clerk

Reduces
Ship Product
Receive
Duality s Customer
Remits
Increases
Cash Receipts
Cash Receive Cash
Processes Clerk
Remittance
Many-to-many Associations
 Many-to-many (M:M) associations
cannot be directly implemented into
relational databases.
 They require the creation of a new
linking table.
Many-to-many Associations
 This process splits the M:M association
into two 1:M associations.
 The linking table requires a “composite
primary key”
View Integration: Creating an
Enterprise-Wide REA Model
 View integration – combining several
individual REA diagrams into a single
enterprise-wide model.
 It involves 3 basic steps.
 Consolidate the Individual Models
 Define the primary keys, foreign keys, and attributes
 Construct the physical database and produce user
views
 Step 1: Consolidate the
Individual Models
 Merging multiple REA models requires
first a thorough understanding of the
business processes and entities
involved in the models.
 Individual models are consolidated or
linked together based on shared
entities.
Step 2: Define Primary Keys,
Foreign Keys, and Attributes
 Implementation into a working
relational database requires primary
keys, foreign keys and attributes in
tables.
 Primary key – uniquely identifies an
instance of an entity.
Step 2: Define Primary Keys,
Foreign Keys, and Attributes
 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.
 Rules for Foreign Keys
 Primary Key Foreign keys: Relations are
formed by an attribute that is common
to both tables in the relation.
 Assignment of foreign keys:
 If 1 to 1 (1:1) association, either of the
table’s primary key may be the foreign
key.
 Rules for Foreign Keys
 If 1 to many (1:M) association, the
primary key on the other side.
 If many to many (M:M) association,
create a separate linking table with a
composite primary key.
 Step 3: Construct 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.
 Step 3: Construct Physical
Database and Produce User Views
 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 Value Chain Analysis
 Value Chain Analysis distinguishes
between primary activities and support
activities.
 REA provides a model for identifying
and differentiating between these
activities.
REA and Value Chain Analysis
 Prioritizing Strategy:
 Focus on primary activities
 Eliminate or outsource support
activities