THE REA APPROACH

The REA model is an accounting framework for modelling an

organizations 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.
From this repository, user views can be constructed that meet the
needs of all users in the organization.
Elements of an REA Model
RESOURCES
Economic resources are things of economic value to the organization.
Defined as objects that are both scarce and under the control of the enterprise.
Used in economic exchanges with trading partners and are either increased or
decreased by the exchange.
EVENTS
Economic Events
Support Events
AGENTS
Internal Agents
External Agents
DEVELOPING AN REA MODEL
The REA model uses semantic modelling to construct an REA diagram.
Differences Between ER and REA Diagrams
Entities in ER diagrams are of one class, and their proximity to other entities is
determined by their cardinality and by what is visually pleasing to keep the
diagrams readable. Entities in an REA diagram are divided into three classes
(resources, events, and agents) and organized into constellations by class on the
diagram.
Sequence of activities
Naming conventions for entities
EXERCISES
 REA ASSOCIATIONS - Bentley Restorations Company restores and sells top- end classic and antique
automobiles. Most of its customers are private collectors, but some are investors who buy multiple
cars and hold them for resale. Bentley extends no credit terms. All sales are for cash. Required Which
of the relationships in the diagram for Problem 2 properly models the entity associations for Bentley
Restorations? Explain your answer.
REA ASSOCIATIONS Based on the data in Problem 2, which of the following relationships in the diagram
for Problem 3 properly models the entity associations for Bentley Restorations? Explain your answer.
REA ASSOCIATIONS Based on the data in Problem 2, which of the relationships in the diagram for Problem 4
properly models the entity associations for this situation? Explain your answer.
K Cannon, Inc., is a manufacturer of portable CD play- ers. The company purchases raw
materials such as plas- tics and computer chips for its conversion cycle. The following describes
K Cannons purchases and pay- ments procedures. John, the purchasing department clerk,
monitors raw materials inventory levels and prepares a purchase req- uisition when purchases
are necessary. These are sent to the purchasing agent, who prepares six copies of a pur- chase
order. Two purchase orders are sent directly to the vendor. One is placed in an open purchase
order file in the purchasing department, and one is used to post to the purchases journal. Each
week the purchasing depart- ment clerk prepares a journal voucher from the pur- chases
journal and sends it to the general ledger department for posting. The AP and the receiving
departments also each receive a copy of the purchase order, which they file temporarily. Upon
receiving the raw materials, the receiving department clerk creates five copies of the receiving
report. One copy is sent to the raw materials warehouse and one copy is sent to the AP
department. Two copies are sent to the purchasing department, where one is filed and one is
used to update the inventory records. The final copy is filed in the receiving department with
the purchase order and packing slip. Vendors send their