Online Payment Processing

Introduction

With the increasing dependence on Accounting Information Systems in today’s world, a way to help map out construction of these systems comes in the form of REA. Conceptualized in 1982, the acronym stems from Resource, Events, and Agents, all of which are important to constructing the diagrams used to help creators of REA models visualize the input and output components of accounting processes. Diagrams consist of two icons, each representing a business process, linked by one of several lines that signal predetermined relationships. The growing popularity of these models has made it a staple in the teaching curriculum of many AIS and computer science courses in colleges across the globe.

Components of REA

It is necessary to first define a few terms making the explanation of REA easier. First, an entity is anything about which the company wants to collect information. REA classifies these entities into three separate categories, which is how the model got its name; Economic Resources, Economic Events, and Economic Agents. Resources are those things that have economic value to the firm. Events are those actions which the organization wants to collect information about, such as a sale. Finally, Agents are those parties which participate in the event, for instance, salesmen.

The theory of REA is based on the semantic approach to modeling. This top down approach to REA development starts out with the designer identifying several events in the business process. This could be something as easy as making a sale. The next step is to identify an agent and a resource used in the transaction. In our sale example, the identified agent may be a sales person and the resource could be a piece of inventory or cash. The final and most important step is to think of the cardinalities of relationships each entity has with one another. Cardinalities describe the disposition of the relationship between entities. There are several different ways in which these cardinalities can be represented. However, the basic ideas behind them are the same. There are minimum and maximum cardinalities. Minimum cardinalities indicate whether the two entities must be linked in at least one instance to one another or not at all. Maximum carnalities indicate whether one instance of the relationship between entities can be linked to one to more than one instance of the other entity.

In REA, these links usually represent a forfeiture of economic resources between two parties. A visual depiction of the example we used earlier may look similar to this:

While this may look trivial, performing this step prior to creating a database makes producing tables for the system much easier because the relationships between processes are already in order. It is easier for the designer to visualize what is happening in the process and he can carry this greater understanding over to creating tables.

REA as a Business Pattern and Value Chain Component

There were two great advances in information technology which helped accelerate the use of REA; Enterprise Resource Planning and Business Process Reengineering. Both Business Process Reengineering and ERP aim their goals at working with the inputs of a process or product in order to create a better output. REA notation helps immensely in mapping out the frameworks for advancing these ideas. In the 1990’s, business experienced a growing trend to improve the value chain in order to make processes more efficient.