The REA Model

• The basic REA model consists of three entity types (resources, events, and agents) and a set of associations linking them.
• Resources are things of economic value to the organization and are the objects of economic exchanges with trading partners.
• REA Events fall into two general groups: economic events and support events.
• Economic events are phenomena that effect changes (increases or decreases) in resources.
• Support events include control, planning, and management activities that are related to economic events but do not directly effect a change in resources.
• Agents are individuals inside and outside the organization who participate in an economic event.
• Economic duality means that each economic event is mirrored by another event in the opposite direction.
• The REA model is an accounting framework for modeling an organization's critical resources, events, and agents and the relationships between them.
• REA systems permit both accounting and nonaccounting data to be identified, captured, and stored in a centralized database.
• Elements of an REA Model

  • Resources
  • Events
  • Agents
• Economic events are the critical information elements of the accounting system and must be captured in as disaggregated (highly detailed) form as possible to provide a rich database.
• Resources are defined as objects that are both scarce and under the control of the enterprise.
• REA Model is a unique version of an Entity Relationship (ER) diagram with three entity types (REA) and the associates linking them.
• Each event is associated with at least one internal agent and one external agent participating in the exchange.
• Organizations that use REA produce financial statements and reports directly from the event-driven data, not from traditional ledgers and journals.
• REA focuses on business activities within business processes. It is event-oriented.
• Entity relationship diagrams include operating, information, and decision events. Only operating events are included in an REA model.
• View Integration Process

  1. Consolidate the individual models.
  2. Define the primary keys, foreign keys, and attributes.
  3. Construct the physical database and produce user views.
• Entities in ER diagrams are of one class, and their proximity to other entities.
• View Modeling

  the database designer identifies and models the set of data that individual users need to make a decision or perform a task.
• An economic exchange does not require duality events to occur simultaneously.
• A semantic model captures the operational meaning of the user’s data and provides a concise description of it.
• Creating an Individual REA Diagram

  1. Identify the event entities.
  2. Identify the resource entities.
  3. Identify the agent entities.
  4. Determine associations and cardinalities between entities.
• Association is the nature of the relationship between two entities, as the labeled line connecting them represents.
• Cardinality (degree of association between the entities) describes the number of possible occurrences in one entity that are associated with a single occurrence in a related entity.