17.1 Why is it not necessary to model activities such as entering information about customers or suppliers, mailing invoices to customers, and recording invoices received from suppliers as events in an REA diagram?

17.2 The basic REA template includes links between two events and links between events and resources and between events and agents. Why do you think the basic REA template does not include direct links between (a) two resources, (b) two agents, or (c) between resources and agents?

 

17.3     How can REA diagrams help an auditor understand a client’s business processes?

17.4 Which parts of Figure 17-6 would accurately depict almost every organization’s revenue cycle? Which parts would change?

 

17.5 What is the relationship between the things that would be represented as resources in an REA diagram and the different categories of assets found on an organization’s balance sheet?  (Hint: Are there any assets that would not be modeled as resources? Are there any resources in an REA diagram that are not listed as assets on a balance sheet?)

17.6 How would accounts payable be reflected in an REA diagram?  Why?

 

17.7 What are the five stages of the database design process?  In which stages should accountants participate?  Why?

17.8 What is the difference between an Entity-Relationship (E-R) diagram and an REA diagram?

17.1 Joe’s is a small ice-cream shop located near the local university’s baseball field. Joe’s serves walk-in customers only. The shop carries 26 flavors of ice cream. Customers can buy cones, sundaes, or shakes. When a customer pays for an individual purchase, a sales transaction usually includes just one item. When a customer pays for a family or group purchase, however, a single sales transaction includes many different items. All sales must be paid for at the time the ice cream is served. Joe’s maintains several banking accounts but deposits all sales receipts into its main checking account.

Draw an REA Diagram, complete with cardinalities, for Joe’s revenue cycle,.

17.2 Joe, the owner of the ice-cream shop, purchases ice cream from two vendors. Over the years, he has developed good relationships with both vendors so that they allow Joe to pay them biweekly for all purchases made during the preceding two-week period. Joe calls in ice-cream orders on Mondays and Thursdays. The orders are delivered the next day. Joe buys ice-cream toppings from one of several local stores and pays for each such purchase at the time of sale with a check from the company’s main checking account.

Draw an REA Diagram, complete with cardinalities, for Joe’s expenditure cycle.

17.3 Sue’s Gallery sells original paintings by local artists. All sales occur in the store. Sometimes customers purchase more than one painting. Individual customers must pay for purchases in full at the time of sale. Corporate customers, such as hotels, however, may pay in installments if they purchase more than 10 paintings. Although Sue’s Gallery has several bank accounts, all sales monies are deposited intact into the main checking account.

Draw an REA Diagram for the  gallery’s revenue cycle.  Be sure to include cardinalities.

17.4   Sue’s Gallery only purchases finished paintings (it never commissions artists). It pays each artist 50% of the agreed price at the time of purchase, and the remainder after the painting is sold. All purchases are paid by check from Sue’s main checking account.

Draw an REA Diagram, complete with cardinalities, of the gallery’s expenditure cycle.

17.5 Develop a data model of Fred’s Train Shop’s expenditure cycle activities related to the acquisition of office equipment and other fixed assets. Fred sometimes orders multiple pieces of equipment. Vendors usually ship the entire order, but sometimes are out of stock of some items. In such cases, they immediately ship to Fred what they have in stock, and then send a second shipment when they obtain the other items. Conversely, several orders placed within a short time period with the same vendor might be filled with one delivery. Assume that Fred makes installment payments for most fixed-asset acquisitions, but occasionally pays for some equipment in full at the time of purchase.

Draw an REA Diagram of your data model.  Be sure to include cardinalities.

 

17.6 Provide an example (in terms of companies with which you are familiar) for each of the business situations described by the following relationship cardinalities:

 

17.7   Model the cardinalities of the following business policies:

a. The relationship between the Sale and Receive Cash events for installment sales.

b. The relationship between the Sale and Receive Cash events at a convenience store.

c. The Take Customer Order–Sale relationship in a situation when occasionally several shipments are required to fill an order because some items were out of stock.

 d. The Sale-Inventory relationship for a custom homebuilder.

e. The relationship between the Sale and Receive Cash events for Dell computers, which requires customers to pay the entire amount of their purchase in advance, prior to Dell shipping the merchandise.

f. The relationship between the Sale and Receive Cash events for a retail store that has some in-store sales paid in full by customers at the time of the sale but that also makes some in-store sales to customers on credit, billing them later and permitting them to make installment payments.

g. The relationship between the Receive Inventory and Disburse Cash events in the case where suppliers require payment in advance, in full.

h. The relationship between the Call on Customers event (i.e., the visit by a salesperson to a potential customer) and the Take Customer Order event for a business that is only conducted door-to-door (e.g., kitchen knives, certain books, etc.) so that the only way to order the items is when a salesperson visits the customer. (Hint: do you think every call results in an order?)

i. The relationship between the Call on Customers and Take Customer Orders events for a manufacturer which also accepts orders on its Web site.

j. The relationship between the Receive Inventory and Disburse Cash events for a company which receives monthly bills from its suppliers for all purchases made the previous month; some suppliers require payment of the entire bill, in full, within 30 days or they will not accept any subsequent orders, but other suppliers accept installment payments.

17.8   The Computer Warehouse sells computer hardware, software, and supplies (such as paper). Individual customers just walk into the store, select merchandise, and must pay for their purchases in full before leaving the store. Corporate customers, however, call in orders in advance, so that the items are waiting to be picked up. Corporate customers may charge their purchases to their account. The Computer Warehouse mails corporate customers monthly statements that summarize all purchases made the prior month. Corporate customers pay the entire balance, as listed on the monthly statement, with one check or EFT transaction.

Draw an REA Diagram for Computer Warehouse revenue cycle, complete with cardinalities.

17.9   The Computer Warehouse purchases its inventory from more than a dozen different vendors. Orders are placed via telephone, fax, or on the supplier’s Web site. Most orders are delivered the next day. Most orders are filled completely in one shipment, but sometimes a supplier is out of stock of a particular item. In such situations, the bulk of the order is shipped immediately and the out-of-stock item is shipped separately as soon as it arrives (such shipments of back orders are never combined with any new orders placed by the Computer Warehouse). The Computer Warehouse pays for some of its purchases COD but usually pays by the 10th of the month for all purchases made the prior month. None of its suppliers allows it to make installment payments.

Draw an REA Diagram for Computer Warehouse expenditure cycle, complete with cardinalities.

17.10   Stan’s Southern Barbeque Supply Store orders mass-produced barbecue products from various suppliers. Stan’s maintains information about a contact person at each supplier along with all required address information. Each purchase order has the order number, date, tax, and total. Purchase orders also contain the following information for each product ordered: stock number, description, and price. The manager of Stan’s places orders by fax several times a day, whenever he notices that an item is running low. Some suppliers fill each individual order separately. Others, however, consolidate orders and fill all of them in one weekly delivery. Stan's suppliers never make partial shipments; if they are out of stock of a certain item, they wait until they obtain that item and then ship the entire order. Some suppliers require payment at the time of delivery, but others send Stan’s a monthly statement detailing all purchases during the current period. Two suppliers allow Stan’s to make installment payments for any individual purchase orders that exceed $20,000.

Draw an REA Diagram for Stan’s Southern Barbecue expenditure cycle, complete with cardinalities 

17.1 Sparky’s Amusement Park is an entertainment park run by recent college graduates. It caters to young people and others who are young at heart. The owners are very interested in applying what they have learned in their information systems and marketing classes to operate a park better than any other in the area. To accomplish these goals, guests of the park are given a personal “membership card” as they enter. This card will be used to identify each guest. Assume that a new card is issued each time a guest comes to the park. As a result, the system does not have to track one person over a period of time. As at other parks, guests pay a flat fee for the day and then are able to ride all of the attractions (such as a double-looping roller coaster and the merry-go-round) for no extra charge. The owners, however, want to track the rides each guest takes and the attractions the guests use. They plan to have guests swipe their membership card through a computerized card reader, which automatically enters information into the computer system. This should allow the owners to gather data about the following:

• Number of people who use each piece of equipment. (How many people rode the Ferris wheel today?)

• Number of times each piece of equipment is operated daily.

• Times of day the attraction is busy or slow. (When was the carousel the busiest?)

• Number of attractions each guest uses. (How many different pieces of equipment did customer 1122 ride?)

• Number of rides each guest enjoys. (How many different rides did customer 1122 enjoy? Did each guest go on any rides more than once?)

Draw an REA diagram for Sparky’s revenue cycle only. Be sure to include cardinalities. State any assumptions you had to make. 

(This problem is adapted from one developed for classroom use by Dr. Julie Smith David at Arizona State University.)