CHAPTER 19

SPECIAL TOPICS IN REA MODELING

Learning Objectives:
1. Develop REA data models for a variety of organizations.
2. Develop REA data models for the HR/payroll, manufacturing, and
capital assets transaction cycles.
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?
2. How do you model the production cycle activities of a
manufacturer?
3. How do you integrate payroll activities with other HR processes,
such as hiring and training employees?
4. How do you model financing transactions, such as the issuance of
stock or debt?

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.
Table 19-1 lists the tables and their attributes that would be required
to implement this model in a relational database.

Additional Events
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 relationship between the Take Customer Order and Fill Customer Order
event is represented as being one-to-many (1:N).
The minimum cardinalities reflect the fact that two events occur
sequentially.
The maximum cardinalities reflect the fact that sometimes the company
may be out of stock of one or more items that were ordered.

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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.
The maximum cardinality from the Fill Customer Order event to the Ship
Order event is 1 because once all the items that were ordered and in
stock have been picked and packed, that entire package is shipped intact
to the customer.
For proper accountability, each Ship Order event is linked to one, and
only one, Fill Customer Order event.

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.
The primary key for Take Customer Order is the Sales Order Number.
The Sales Order Number is also the foreign key for Fill Customer
Order.
The primary key for Fill Customer Order is the Picking Ticket
Number. The Picking Ticket Number is also the foreign key for Ship
Order.
The primary key for Ship Order is the Shipment Number.
The primary key for Receive Cash is the Remittance Number.
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 FeatureEmployee Roles

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 warehouse employee is involved in the Fill Customer Order
event.
The shipping employee is involved in the Fill Customer Order and
Ship Order events.

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There is also an external agent, carrier, involved in the

Ship Order event.
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.
The inventory involved would include oil and brake shoes.
The relationship between the Sales and Services resources
would be modeled as M:N because most businesses provide the
same types of services to many different customers. The
relationship between Sales and Inventory would also be M:N
as there would be many types of parts used for the same
types of services.
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.
The inventory in this case would not involve identifiable
inventory parts. Only the professional and administrative
labor would be mainly involved.
The relationship between Sales and Services resources would
remain the same as mentioned above at M:N. However, the
relationship between Sales and Inventory would now be a
minimum cardinality of 0.

Digital Assets
What about digital assets? Companies sell software, music, or digital
photographs over the Internet.
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.
The Inventory table is almost the same as that for
businesses that sell merchandise. The difference is
that there is no need for attributes such as quantity
on hand, quantity available, and reorder point and
reorder quantity because they are only selling copies.

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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.
Businesses need to track each rental item or equipment separately.
The primary key for rental equipment would be the serial number.
Attributes in the Rental Inventory table would include the date and time
it was rented, rental price and terms of the rental agreement.
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.
The cardinality from the Receive Cash event to the Rent Item event is a
minimum of 0 and maximum of 1.
The relationship between the Rent Item and Return Item events is 1:1.

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
Figure 19-4 is similar to the REA diagram in 18-2, except that we have
one new event, Request Inventory at the beginning of the REA diagram.
There is also one new corresponding table, Request Inventory.
Request Inventory event provides a way to collect data about the request
sent by activities or departments to the purchasing department.
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.
The N maximum reflects the fact that some requests involve items
from more then one vendor, requiring more than one purchase order.
Going back to the Request Inventory event from the Order event
also has a 0 minimum and N maximum.

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Attribute Placement
There is only one attribute, Quantity Requested, in the new table,
Inventory-Request_Inventory.
The unit costs and quantity-on-hand attributes are provided in the
Inventory Table. The quantity ordered attribute is provided in the
Inventory-Order_Inventory Table. This will be needed in calculating the
cost of goods sold and the inventory value as various valuation methods
(FIFO, LIFO, weighted-average, or specific identification).

New REA FeatureM: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 deliveries
involve large quantities which will require several employees. Receiving
inventory involves Receiving and Warehouse employees.

New REA FeatureLocations

The locations involved include
1. The activity or department where the order was requested
2. The purchasing department where the order was placed
3. The receiving department
4. The warehouse
The cardinality pair from the Warehouse to the Inventory resource has a
0 minimum and N maximum.
If the same inventory items are stored in more than one warehouse, the
maximum cardinality from Inventory to Warehouse is N.
The minimum cardinality from the Cash Resource to Financial Institutions
is 0; the maximum cardinality is 1.

New REA FeatureRelationships Between Resources and Agents

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.
Payments for these services are included in the Disburse Cash table.
Acquisition of these services are included in the Acquire Services
table.

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The relationship between the acquisition event and the resource entity
is modeled as 1:N because in most cases each service is acquired from a
different supplier.

Rental Transactions
Many organizations rent office spaces and warehouses.
Information about the payment event is included in the Disburse Cash
table.
A separate Rent Resource event may be created to represent the
acquisition of the resource.
Rented and owned resources may be represented in separate entities.
In addition, if the rented resource must be returned, then another event
will need to be included in the REA diagram.
In that case, the Rent Resource event would be linked to two
events: 1) Disburse Cash and 2) the Return of the resource.

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
2. Use of labor in production
3. Use of machinery and equipment in production
4. Production of new finished products, represented by the work-inprocess event

Additional EntitiesIntellectual 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 Bill of Materials has relationships with Raw Materials and
Finished Goods.
The cardinality relationship from Bill of Materials to Raw
Materials resource is a minimum of 1 and maximum of 1.
The cardinality relationship from Bill of Materials to
Finished Goods Inventory resource is minimum of 1 and
maximum of 1.
The Job Operations List has relationships with Perform Job
Operations event and Finished Goods Inventory resource.

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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.
The Machine Operations List resource has relationships with
Perform Machine Operations event and Finished Goods Inventory
resource.
The cardinality relationship from Machine Operations List to
Perform Machine Operations is a minimum of 0 and a maximum
of N.
The cardinality relationship from Machine 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.
Information about the actual labor and machine operations performed are
stored in the Job Operations and Machine Operations entities,
respectively.
The Job Operations event entity is an example of a Give Resource event.
The Machine Operations event records information about the use of a
specific piece of machinery or equipment.
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.
The Work-in-Process entity is used to collect and summarize data about
the raw materials, labor, and machine operations used to produce a batch
of goods. The relationship between Work-in-Process and those three event
entities are all 1:N.
Thus, three Give Resource events are related to one Get Resource
event.
Note that Figure 19-6 shows only one agent associated with the Job
Operations event.

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New REA FeatureRelationships 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.
Relationships between internal agents may be created to model lines of
responsibilities.
There can also be relationships with external agents. For example,
companies may assign customers to specific employees.

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.
All other events represent HR activities.

HR Cycle Entities
The Employee entity is linked to almost every other entity in the
diagram.
The Employee entity stores much of the data typically found in the
employee master file
The Skills entity contains data about the different job skills of
interest to the organization.
The relationship between Skills and Employees is modeled as being M:N
because on employee may possess a number of job skills and several
employees may possess the same skill.
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 Skills and Training entities is 1:N.
The Recruiting event entity stores data about activities performed to
notify the public of job openings.
The M:N relationship between Skills and Recruiting reflects the fact
that each advertisement may seek several specific skills and that, over
time, there may be several advertisements for a given skill.
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.

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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.
Regular event-agent relationships, such as that between sales and
employees, collect data to answer such questions as:
How much did salesperson X sell this week?
How many sales did each salesperson make?
The Time Used event provides the information needed to answer such
questions as:
How much time did a particular salesperson spend calling in
customers, as opposed to providing customer service support via
the telephone?
Not every organization collects detailed data about their employees use
of time. Moreover, even when such an event is included, the resource
that is used (Employee Time) is seldom implemented because there are no
meaningful attributes to describe.

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.
The Transfer Agent maintains the necessary information about individual
creditors to direct the interest payments and payment of the principal.
Issue Debt event contains data about the aggregate amount received from
issuing a set of debt instruments.
For example, the issuance of $10,000,000 5 percent bonds which
were purchased for $9,954,000, constitutes on Issue Debt 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.
The cardinality of the relationship from the Disburse Cash event to the
Issue Debt event has a 1 maximum. The minimum cardinality is 0.

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Equity transactions are modeled in a manner similar to debt

transactions.
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.
The Disburse Cash and Issue Stock events are modeled as being M:N. The
minimum cardinalities are 0 in both directions.

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