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The resource event and agents REA model is a technique for capturing Essay
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Nov 26th, 2019

The resource event and agents REA model is a technique for capturing Essay

The resource event and agents (REA) model is a technique for capturing information about economic phenomena. It describes a business as a set of economic resources, economic events and economic agents as well as relationships among them. Although the REA model was proposed as a result of the study of accounting theories, it can be applied to many other business domains such as Ship serve company. Ship serve company uses the REA data model to record its sales, purchases and many other activities.

According to McCarthy (1982) economic resource are objects that are under the control of economic agents. For example, products and services, money, raw materials, and services the enterprise uses. Economic events are the events, transactions, circumstances, and other phenomena which change economic resources from production, exchange, consumption and distribution. Fallon, Polovina (2013). Example include things such as sales of goods. Economic agents are identifiable parties which obtain, use or dispose of economic resources, Geerts (2000). Example of economic agents are customers, suppliers, employees and enterprises.

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The diagram below illustrates the REA data model for Ship serve company. Each exchange consists of at least one increment economic event that increases the value of a resource to or from other economic agents. Every increment event is related to at least one decrement economic event that decreases the value of a resource of the enterprise by transferring rights to the resource to or from other economic agents. We call the relationship between the increment and decrement economic events exchange duality, or in short, exchange. The exchange duality is a many-to-many relationship, indicating that in the application model there must be at least one decrement for each increment, and vice versa. Therefore, the exchange duality in the application model can be an n-ary relationship, that relates several increment and decrement entities.The REA model of the Ship serve company focuses on the core economic phenomena, and therefore it covers many special cases. For example, most customers pay when they purchase goods, but some customers may receive an invoice, and pay for all their purchases in a certain period at once. If the case of Internet sales, customers must provide their credit card information before the goods is delivered, and the Ship serve company receives money from the customer’s bank later. When the sale occurs in the company, the customers pay after they get the goods, either using cash or a credit card.All these cases are covered by the model above, this is very useful if we would like to create a robust skeleton of a software application. Customers may order pizza over the Internet. In this case, a software business application creates an electronic Sales Order, which specifies a commitment of Ship serve company to sell a specified goods to the Customer, and a commitment of a Customer to pay for the goods a specified amount of Cash. The Sales Order, is an example of a contract between the economic agents Ship serve and the Customer. The Sales Line and the Payment Line are not economic events; they are commitments to perform the economic events in well-defined future Hollander (1999). The Sales Line is a commitment to perform the event Sale, and the Payment Line is a commitment to perform the event Cash Receipt in the future.The REA model for the sales process with sales order. The Sales Order often contains terms specifying what should happen if the commitments are not fulfilled, such as when the payment arrives late, or the customer is not satisfied with the goods, the fact that a contract can be represented as a computer model is important for automatic tracking of the state of the contract at runtime, and also for computer-assisted evaluation of complicated financial contracts. Hruby, Kiehn and Scheller (2006). When Ship serve company purchases tomatoes, cheese, pepperoni, flour and other raw materials for example, it essentially exchanges the raw material for cash. Vendor gives Raw Material to Ship serve company, which gives it Cash in return. For Ship serve company, the Purchase process represents an outflow of Cash and an inflow of Raw Material. Purchasing raw material is an exchange of raw material for cash The REA model for the process of purchasing raw material is illustrated The REA model for the purchase process. The Vendor and the Ship serve company are economic agents, the Raw Material and Cash are economic resources Dunn (2004). The transfer of ownership of the Raw Material from the Vendor to Ship serve is an increment economic event, and the transfer of ownership of Cash from Ship serve company to the Vendor is a decrement economic event; the increment and decrement are from Ship serve perspective. Similarly, as for the REA model for sales, the REA model for purchases covers many special cases. Some raw materials can be paid by check or bank transfer; some can be made in different currencies. Again, this is useful if the skeleton of a software application is based on this model, because it does not have to be changed if some technical aspects of the purchase process change.

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