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INTRODUCTION

Questions to be addressed in this chapterinclude: What steps are followed to design and

implement a database system?

How is the REA data model used to design anAIS database?

How is an entity-relationship REA diagram ofan AIS database drawn?

How are REA diagrams read, and what dothey reveal about the business activities andpolicies of the organization being modeled?

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INTRODUCTION

Steps in database design include thefollowing: Planning

Requirements analysis Identifying user information needs.

Defining scope of proposed system.

Using information about the expected number of

users and transaction volume to make preliminary

decisions on hardware and software

requirements.

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INTRODUCTION


Requirements analysis Design Developing different schemas for the new

system at the conceptual, external, and internal

levels.

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INTRODUCTION


Requirements analysis Design

Coding

Translating the internal-level schema into the

actual database structures that will beimplemented in the new system.

Developing new applications.

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INTRODUCTION



Coding

Implementation

Transferring data from existing systems to thenew database.

Testing the new system.

Training employees.

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INTRODUCTION



Coding

Implementation

Operation and maintenance Using and maintaining the new system.

Monitoring system performance and user

satisfaction to determine need for enhancements

and modifications.

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INTRODUCTION


Requirements analysis

Design

Coding

Implementation

Operation and maintenance

Eventually, changes in business strategyand practices or new IT developmentslead to the need for a new system and theprocess starts over.

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INTRODUCTION

Accountants can and should participate in all

stages of the database design process, although

participation varies between stages.

Planning stage

Accountants provide information to help

evaluate feasibility.

Participate in the feasibility decision.

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INTRODUCTION




Planning stage Requirements analysis and design stages

Accountants participate in:

Identifying user needs

Developing logical schemas Designing data dictionary

Specifying controls

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INTRODUCTION





Coding stage

Implementation stage

Accountants help test accuracy of database and

application programs.

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INTRODUCTION





Coding stage

Implementation stage

Operation and maintenance stage

Accountants use the database system to

process transactions.

Sometimes help manage it.

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INTRODUCTION

Accountants may provide the greatest value by

taking responsibility for datamodel ingthe

process of defining a database to faithfully

represent all aspects of the organization,including interactions with the external

environment.

Occurs during both requirements analysis and design

stage. Two important tools to facilitate data modeling:

Entity-relationship diagramming

REA data model

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INTRODUCTION





environment.




REA data model

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ENTITY-RELATIONSHIP DIAGRAMS

An enti ty -relat ionsh ip (E-R)

diagramis a graphical technique for

portraying a database schema. Shows the various entities being

modeled and the important relationships

among them.

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An enti tyis anything about which theorganization wants to collect and storeinformation. Example: Your university collects and stores

information about students, courses, enrollmentactivity, etc.

In a relational database, separate tables wouldbe created to store information about each

distinct entity. In an object-oriented database, separate classes

would be created for each distinct entity.

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Enrollment Students

In an E-R diagram, entities are depicted as rectangles.

But there are no industry standards for other aspects of

these diagrams.

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Some data modelers, tools, and authors

use diamonds to depict relationships.

Enrollment StudentsLine

Items

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Others do not use diamonds.

Enrollment Students

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Sometimes the attributes associated with each entity aredepicted as named ovals connected to each rectangle.

Enrollment Students

Enrollment

Number Enrollment

Date

Enrollment

Time

Student

ID No.

Student

Name

Student

Address

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Sometimes these attributes are listed in a separate table.

Enrollment Students

Entity Name Attributes

Enrollment Enrollment No., Enrollment Date, Enrollment Time

Student Student ID No., Student Name, Student Address

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In this book, we will create E-R diagrams with a largenumber of entities and relationships.

To reduce clutter and improve readability, we omitdiamonds and list attributes in a separate table.

Enrollment Students

Entity Name Attributes

Enrollment Enrollment No., Enrollment Date, Enrollment Time

Student Student ID No., Student Name, Student Address

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E-R diagrams can be used to represent

the contents of any kind of databases.

Our focus is on databases designed to

support an organizations business

activities.

The diagrams we develop depict the

contents of a database and graphically

model those business processes.

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In addition to their use in designing

databases, E-R diagrams can be used to:

Document and understand existing

databases.

Reengineer business processes.

In this chapter, well use E-R diagrams for

designing new databases andunderstanding existing ones.

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E-R diagrams can include many different

kinds of entities and relationships.

An important step in designing a database

is deciding which entities need to be

modeled.

The REA data model is useful for this

decision.

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INTRODUCTION





environment.




REA data model

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THE REA DATA MODEL

The REA data model was developed specificallyfor use in designing accounting informationsystems. Focuses on business semantics underlying an

organizations value chain activities. Provides guidance for: Identifying the entities to be included in a database.

Structuring the relationships among the entities.

REA data models are usually depicted in the

form of E-R diagrams. Therefore, we refer to E-R diagrams developed

with the REA model as REA d iagrams.

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THE REA DATA MODEL

Three basic types of entities

The REA data model is so named because it

classifies entities into three distinct

categories: Resourcesthat the organization acquires and

uses. Resources are things that have

economic value to the organization.

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THE REA DATA MODEL





uses.

Eventsin which the organization engages.

These are the various business activities

about which management wants to

collect information for planning or

control purposes.

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THE REA DATA MODEL





uses.

Eventsin which the organization engages

Agentsparticipating in these events.

Includes people and organizations who

participate in events and about whom

information is desired for planning,

control, and evaluation purposes.

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THE REA DATA MODEL

Can you identify the resourcesin this diagram?

Employee

Customer

Employee

Sales

Receive

Cash

Inventory

Cash

Accounts

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THE REA DATA MODEL

Can you identify the resources in this diagram?

Employee

Customer

Employee

Sales

Receive

Cash

Inventory

Cash

Accounts

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THE REA DATA MODEL

Can you identify the eventsin this diagram?

Employee

Customer

Employee

Sales

Receive

Cash

Inventory

Cash

Accounts

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THE REA DATA MODEL

Can you identify the events in this diagram?

Employee

Customer

Employee

Sales

Receive

Cash

Inventory

Cash

Accounts

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THE REA DATA MODEL

Can you identify the agentsin this diagram?

Employee

Customer

Employee

Sales

Receive

Cash

Inventory

Cash

Accounts

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THE REA DATA MODEL

Can you identify the agents in this diagram?

Employee

Customer

Employee

Sales

Receive

Cash

Inventory

Cash

Accounts

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THE REA DATA MODEL

Structuring relationships: The basic

REA template

The REA data model prescribes a basic

pattern for how the three types of entities(resources, events, and agents) should relate

to one another.

Rule 1: Each event is linked to at least one

resource that it affects.

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THE REA DATA MODEL

Event A

Event B

Resource A

Resource B

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THE REA DATA MODEL


REA template



to one another.


resource that it affects.


other event.

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THE REA DATA MODEL

Event A

Event B

Resource A

Resource B

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THE REA DATA MODEL


REA template



to one another.

Rule 1: Each event is linked to at least one resource

that it affects.

Rule 2: Each event is linked to at least one other event.

Rule 3: Each event is linked to at least two agents.

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THE REA DATA MODEL

Agent A

Agent B

Agent C

Event A

Event B

Resource A

Resource B

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THE REA DATA MODEL

Lets take a closer look at each ofthese three rules.

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THE REA DATA MODEL

Rule 1: Every event entity must be linked toat least one resource entity. Events must be linked to at least one resource that

they affect.

Some events affect the quantity of a resource: If they increase the quantity of a resource, they are called a

get event.

If they decrease the quantity of a resource they are called agive event.

Example: If you purchase inventory for cash:

The get event is that you receive inventory.

The give event is that you pay cash.

Relationships that affect the quantity of a resource aresometimes referred to as stockf lowrelationships.

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THE REA DATA MODEL

Not every event directly alters the quantity of a

resource.

If a customer orders goods but has not paid and

has not received goods, this activity is called a

commi tmentevent. Organizations track the effects of commitments to

provide better service and for planning purposes.

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THE REA DATA MODEL

Rule 2: Every event entity must be linked to

at least one other event entity.

Give and get events are linked together in what is

labeled an econom ic dual i tyrelationship.

These relationships reflect the basic business

principle that organizations engage in activities that

use up resources in hopes of acquiring other

resources in exchange.

Each accounting cycle can be described in terms of

give-to-get economic duality relationships.

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The revenue cycle involves interactions

with your customers.

You sell goods or services and get cash.

THE REA DATA MODEL

Give

InventoryGet

Cash

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The expenditure cycle involves

interactions with your suppliers.

You buy goods or services and pay cash.

THE REA DATA MODEL

Give

CashGet

Inventory

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In the production cycle, raw materials, labor, andmachinery and equipment time are transformedinto finished goods.

THE REA DATA MODEL

Give (Use)Raw

Materials

Give (Use)

Employee

Time

Give (Use)

Machinery &

Equipment

Get Finished

Goods

Inventory

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The financing cycle involves interactions withinvestors and creditors.

You raise capital (through stock or debt), repaythe capital, and pay a return on it (interest ordividends).

THE REA DATA MODEL

Give

CashGet

Cash

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THE REA DATA MODEL

Not every relationship between two events

represents a give-to-get economic duality.

Commitment events are linked to other events

to reflect sequential cause-effectrelationships.

Example:

Take customer order (commitment), which leadsto:

Deliver inventory (give event) and receive cash

(get event).

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THE REA DATA MODEL

Rule 3: Every event entity must belinked to at least two participatingagents.

For accountability, organizations need to beable to track actions of employees.

Also need to monitor the status ofcommitments and exchanges with outside

parties. Each event links to at least two participating

agents.

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THE REA DATA MODEL

For events that involve transactions with externalparties: The internal agent is the employee responsible for the

affected resource.

The external agent is the outside party to thetransaction.

For internal events, such as transferring rawmaterials to the production floor:

The internal agent is the employee who gives upresponsibility or custody for the resource.

The external agent is the one who receives it.

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DEVELOPING AN REA DIAGRAM

To design an REA diagram for an entire

AIS, one would develop a model for each

transaction cycle and then integrate the

separate diagrams into an enterprise-widemodel.

In this chapter, we focus on the individual

transaction cycles.

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Developing an REA diagram for a specific

transaction cycle consists of three steps:

STEP ONE: Identify the events about which

management wants to collect information. STEP TWO: Identify the resources affected by

the events and the agents who participated.

STEP THREE: Determine the cardinalitiesbetween the relationships.

Lets walk through an example.

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Developing an REA diagram for a specific

transaction cycle consists of three steps:




STEP THREE: Determine the cardinalities

between the relationships.


STEP ONE IDENTIFY RELEVANT

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STEP ONE: IDENTIFY RELEVANT

EVENTS

At a minimum, every REA model must includethe two events that represent the basic give-to-get economic exchange performed in thattransaction cycle.

The give event reduces one of the organizationsresources.

The get event increases a resource.

There are usually other events that managementis interested in planning, controlling, andmonitoring. These should be included in themodel.


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EVENTS

Example: Typical activities in the revenue

cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment


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EVENTS


cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment

Taking the customer

order does not involve

giving or taking a

resource. It is a

commitment event.


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EVENTS


cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment

Filling the order involves

a reduction in thecompanys inventory. It

is a give event.


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EVENTS


cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment

Billing customers

involves the exchange of

information with an

external party but does

not affect resources.


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EVENTS


cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment Collecting payment

results in an increase in

cash. It is a get event.


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EVENTS


cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment

The give-to-get, then, is: Fill customer order

(often referred to as

sale);

Collect cash (often

referred to as cashreceipt).


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EVENTS


cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment

Should take customer

order and bill

customer be included in

the model?


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EVENTS


cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment

Taking an order requires

that we set resources

aside.

That information should

be included in our

model.


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EVENTS


cycle include:

Take customer order

Fill customer order

Bill customer

Collect payment

Printing and mailing

invoices does not directly

affect an economic

resource.

It does not represent acommitment on the part of

the company to a future

exchange.

It is an information

retrieval event and shouldnot alter the contents of

the database.

Does not need to be

included in the model.


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EVENTS

Although accounts receivable is an assetin financial reporting, it is not representedas a resource in an REA model.

It represents the difference between totalsales to a customer and total cash collectionsfrom the customer.

The information to calculate an accounts

receivable balance is already there becausethe sales and cash receipt information iscaptured.


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EVENTS

Events that pertain to entering data or

re-packaging data in some way do not

appear on the REA model.

They are not primarily value-chain activities.

What is modeled is the business event and

the facts management wants to collect about

the event, not the data entry process.


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EVENTS

In completing the first step of an REA

diagram, the event entities are typically

drawn from top to bottom in the sequence

in which they normally occur.


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EVENTS

Sale

Receive

Cash

Take Order

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Developing an REA diagram for a specifictransaction cycle consists of three steps:


management wants to collect information. STEP TWO: Identify the resources affectedby the events and the agents whoparticipated.



STEP TWO: IDENTIFY RESOURCES AND

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AGENTS

When the relevant events have been

diagrammed in the center of the REA

diagram, the resources that are affected

by those events need to be identified. Involves determining:

The resource(s) reduced by the give event.

The resource(s) increased by the get event. The resources that are affected by a

commitment event.


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AGENTS

Sale

Receive

Cash

Take Order

What is the give

event?


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AGENTS

Sale

Receive

Cash

Take Order

What is the give

event?


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AGENTS

Sale

Receive

Cash

Take Order

What resource

is reduced by

the give event?

Inventory


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AGENTS

Sale

Receive

Cash

Take Order

What is the get

event?Inventory


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AGENTS

Sale

Receive

Cash

Take Order

What is the get

event?Inventory


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AGENTS

Sale

Receive

Cash

Take Order

What resource

is increased bythe get event?

Inventory

Cash


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AGENTS

Sale

Receive

Cash

Take Order

Is there a

commitmentevent?

Inventory

Cash


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AGENTS

Sale

Receive

Cash

Take Order

Is there a

commitmentevent?

Inventory

Cash


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AGENTS

Sale

Receive

Cash

Take Order

What resource

is affected bythe commitment

event?

Inventory

Cash


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AGENTS

The agents who participate in each eventshould also be identified.

There will always be at least one internal

agent (employee). In most cases, there will also be an external

agent (e.g., customer or supplier) who

participates.


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AGENTS

Sale

Receive

Cash

Take Order

What agents are

involved in the

sale?

Inventory

Cash

Customer

Employee


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AGENTS

Sale

Receive

Cash

Take Order

What agents are

involved in the

receipt of cash?

Inventory

Cash

Customer

Employee

Customer


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AGENTS

Sale

Receive

Cash

Take Order

What agents are

involved in

taking theorder?

Inventory

Cash

Customer

Employee

Customer

Employee


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Developing an REA diagram for a specifictransaction cycle consists of three steps:






STEP THREE: DETERMINE

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S

CARDINALITIES OF RELATIONSHIPS

The final step in an REA diagram for atransaction cycle is to add information about the

relationship cardinalities.

A cardinal i tydescribes the nature of therelationship between two entities.

It indicates how many instances of one entity can be

linked to a specific instance of another entity.

For example, the cardinality between the event Salesand the agent Customeranswers the question:

For each sale a company makes, how many customers are

associated with that sale?


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Unfortunately, there is no universalstandard for diagramming cardinalities.

In this text, we adopt the graphical crows

feet notation style because: It is becoming increasingly popular.

It is used by many software design tools.


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Using the crows feet notation:

The symbol for zerois a circle:O


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Using the crows feet notation: The symbol for zero is a circle: O

The symbol for oneis a single stroke:|


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Using the crows feet notation: The symbol for zero is a circle: O

The symbol for one is a single stroke: |

The symbol for manyis the crows foot:


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Sale Customer

There is typically a minimum and

maximum cardinality for each entity

participating in a relationship.


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Sale Customer

The minimum cardinality can be

either zero or one.

The symbols for the minimumcardinalities are shown above in

red.


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Sale Customer

The minimum cardinality symbol

next to customer is the symbol for

one. This symbol means that for every

occurrence of a sale, there must be

a minimum of one customer

involved.


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Sale Customer

The minimum cardinality symbol next to sale is the

symbol for zero.

This symbol means that for every customer in thedatabase, there must be a minimum of zero sales. This

minimum of zero allows the company to add a customer

to its database before any sales have been made to that

customer, i.e., a prospective customer can be included.


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Sale Customer

The maximum cardinality can be

either one or N (many).

The symbols for the maximumcardinalities are shown above in

red.


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SaleCustomer

The maximum cardinality symbol

next to customer is the symbol for

one. This symbol means that for every

occurrence of a sale, there can be

no more than one customer

involved.


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SaleCustomer

The maximum cardinality symbol next to sale is the

symbol for many.

This symbol means that for every customer in thedatabase, there can be many sales involved. Obviously,

a company can make multiple sales to an individual

customer.


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Three types of relationships Three types of relationships are possible between

entities.

Relationships depend on the maximum cardinality on

each side of a relationship. A one-to-one relationship (1:1) exists when the maximum

cardinality for each entity in the relationship is one.


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Sale

Take Order

Both maximums

are one, so this is

a one-to-onerelationship.


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entities.




A one-to-many (1:N) relationship exists when the

maximum cardinality on one side is one and the

maximum on the other side is many.


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SaleCustomer

The maximum number of customers that can be

involved in each sale is one.

The maximum number of sales that can be associatedwith any individual customer is many.

This is a one-to-many (1:N) relationship.


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entities.




A one-to-many (1:N) relationship exists when the maximum

cardinality on one side is one and the maximum on the other

side is many.

A many-to-many (M:N) relationship exists when the

maximum on both sides is many.


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Inventory Sale

The maximum number of inventory items that can be

sold in one sale is many.

The maximum number of sales that can occur for aparticular inventory item is many.

This is a many-to-many (M:N) relationship.


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It is not a one size fits all world forrelationships and cardinalities. The

cardinalities between two entities can vary

based on how the particular companydoes business.

Lets look at some examples.


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Cash

Receipt

Sale Customers pay

for each sale with

a maximum of

one payment

(typical for retail

stores).

Each cash receipt

from a customer

relates to one

(and only one)

sale.

The relationship

between sales

and cash receipts

is 1:1.


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Cash

Receipt

Sale Customers pay

for each sale with

a maximum of

many payments

(installments).

Each cash receiptfrom a customer

relates to one

(and only one)

sale.

The relationshipbetween sales

and cash receipts

is 1:N.


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Cash

Receipt

Sale Customers make

only one payment

for a sale.

Each cash receipt

from a customer

can relate tomultiple sales

(e.g., they pay for

all sales that

month in one

payment).

The relationship

between sales

and cash receipts

is 1:N.


C S O O S S

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Cash

Receipt

Sale Customers may

make multiple

payments for a

particular sale.

A cash receipt

from a customermay relate to

more than one

sale.

The relationship

between salesand cash receipts

is M:N.



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In other words, the choice of cardinalitiesis not arbitrary.

It reflects facts about the organization that

are obtained during the requirementsdefinition stage of the database design

process.



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Now lets go back to the REA diagram forthe revenue cycle and see if we can

complete the cardinalities.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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In relationships between events andagents:

For each event that occurs, the cardinality

between event and agent is typically (1:1). Example: When a sale occurs:

There is usually one and only one customer.

There is usually one and only one salesperson.

This practice makes it more feasible for theorganization to establish employee accountability

for the event.



Can you think of a

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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee

scenario in which the

cardinality between

event and agent mightnot be (1:1)?



How many employees

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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee

would be involved in a

take order event if

the customer placedthe order online?



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For each agent the cardinality between agentand event is typically (0:N).

Example: For a particular salesperson:

There is typically a minimum of zero sales (allows for

inclusion of a new salesperson who has not yet made anysales).

A salesperson can have a maximum of many sales.

Or: For a particular customer:

There is typically a minimum of zero sales (to allow for theinclusion of prospective customers who havent bought

anything yet) and a maximum of many sales.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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Lets now look at the relationship betweenevents and resources.

In the cardinality between event and resource,

the minimum cardinality is typically one,because an event cant occur without

affecting at least one resource.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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The maximum could be one or zero. In this particular story, each sale can involve

many items of inventory, so the maximum is

many. However, every receipt of cash is deposited to

one and only one cash account, so the

maximum there is one.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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In the cardinality between event andresource, the minimum is typically zero.

A company can have an inventory item for

which there has never been a sale. When the companys cash account is new,

there has never been a cash receipt

deposited in it.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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In the cardinality between event andresource, the maximum is typically many.

Most inventory items can be sold many times.

(An exception might occur if each inventoryitem is one unique item, such as a piece of

real estate.)

The companys cash account can have many

cash receipts.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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Finally, lets look at the relationships between events. When events occur in a sequence, the minimum

cardinality between the first event and the second eventis always zero, because there is a span of time (althoughpossibly quite short) when the first event has occurred

but there are zero occurrences of the second event. Examples:

When an order is first taken, there have been no deliveries ofgoods (sale event) to the customer.

When goods are delivered to the customer, there is a span oftime, however brief, in which there is no cash receipt from thecustomer.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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The minimum cardinality between thesecond event and the first event is

typically one, because the second event

cant occur without the first event havingoccurred.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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An exception could occur if the first eventis not required for the second event to

occur.

Example: If a sale can be made withoutfirst taking an order, then the minimum

cardinality between saleand take order

could be zero.



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The maximums in the cardinalities betweenevents can be either one or many, and these

maximums vary based on business practices.

We saw this when we looked at the four different

possibilities for the relationships between sales

and cash receipts previously.

On the following slides, see if you can explain

the maximums between the three events.



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Sale

Receive

Cash

Take Order

Inventory

Cash

Customer

Employee

Customer

Employee



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Uniqueness of REA diagrams Each organization will have its own unique

REA diagram.

Business practices differ across companies, socardinalities and relationships will differ.

A given organization can change business

practices, leading to a change in its REA diagram:

A change in practice could cause a change in

cardinalities.

Could even lead to the inclusion of different entities on

the diagram.



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Data modeling can be complex andrepetitive.

Data modelers must discuss their drafts of

models with intended users to ensure that: Key dimensions are not omitted or misunderstood.

Terminology is consistent.

SUMMARY

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In this chapter, youve learned about the steps tofollow in designing and implementing a database

system.

Youve learned how the REA data model is used

to design an AIS database and how an entity-

relationship diagram of an AIS database is

drawn.

Youve also learned how to read REA diagramsand what they reveal about the activities and

Romney Ch15

Documents

Transcript of Romney Ch15