Accounting
Information
Systems
9th Edition
Marshall B. Romney
Paul John Steinbart
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
5-1
Data Modeling and
Database Design
Chapter 5
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
5-2
Learning Objectives
1.
2.
3.
4.
5.
Discuss the steps for designing and
implementing a database system.
Use the REA data model to design an AIS
database.
Draw an Entity-Relationship (E-R) diagram
of an AIS database.
Build a set of tables to implement an REA
model of an AIS in a relational database.
Read an E-R diagram and explain what it
reveals about the business activities and
policies of the organization being modeled.
©2003 Prentice Hall Business Publishing,
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5-3
Introduction
Ashton Fleming, the accountant for
S&S, is learning that designing a
relational database for S&S is not as
easy as the computer store
salesperson made it seem.
 He is planning to attend a seminar to
teach accountants the basics on how
to design a relational database.

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Introduction

Ashton hopes to have answers for the
following questions by the end of the
seminar:
What are the basic steps to follow
when designing a database?
 When creating a relational database,
how exactly do you decide which
attributes belong in which tables?

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5-5
Introduction

How can you document an AIS that is
implemented as a relational
database?
This chapter explains how to design
and document a relational database
for an accounting information system.
 It focuses on one of the aspects of
database design, data modeling.

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Introduction
This chapter also introduces the REA
accounting model and EntityRelationship (E-R) diagrams.
 It shows how to use these tools to
build a data model of an AIS.
 Finally, it describes how to implement
the resulting data model in a relational
database.

©2003 Prentice Hall Business Publishing,
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5-7
Learning Objective 1
Discuss
the steps for
designing and
implementing a database
system.
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5-8
Designing and Implementing
a Database System

There are six basic steps involved in
designing and implementing a
database system. They are:
1.
2.
3.
Initial planning to determine the
need for and feasibility of developing
a new system.
Identifying user needs.
Developing the contextual-, externaland internal-level schemas.
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Designing and Implementing
a Database System
4.
5.
6.
Translating the internal-level schema
into the actual database structures
that will be implemented in the new
system.
Transferring all data from the
existing system to the new
database.
Using and maintaining the new
system.
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Learning Objective 2
Use the REA data model to
design an AIS database.
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The REA Data Model

Data modeling is the process of
defining a database so that it faithfully
represents all aspects of the
organization, including its interactions
with the external environment.
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The REA Data Model
Data Modeling in the Database Design Process
Data
modeling
occurs
here
Planning
Operation and
maintenance
Requirements
analysis
Implementation
Design
Coding
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The REA Data Model
The REA data model is a conceptual modeling
tool specifically designed to provide structure
for designing AIS databases.
 The REA data model provides structure in two
ways:
1 By identifying what entities should be included
in the AIS database
2 By prescribing how to structure relationships
among the entities in the AIS database

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Sample REA Diagram
Sales Person
Participates
in
Inventory
Stock flow
Sales
Participates
in
Customer
Economic
Duality
Participate
s
in
Cash
Stock flow
Cashier
Receive Cash
Participates
in
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Basic REA Template
Internal
Agent
Participates
in
Resource A
inflow
Get Resource A
Participates
in
External
Economic
Agent
Duality
Participate
s
in
Internal
Agent
Resource B
outflow
Give up Resource B
Participates
in
External
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Agent
An AIS Viewed as a Set of
Give-to-Get Exchanges
Give Inventory
Get Cash
Revenue Cycle
Give Cash
Get Inventory
Expenditure Cycle
Give Cash
Give Cash
Get Employee’s
Time/Service
Get Cash
Human Resources/Payroll
Cycle
Production Cycle
Get Employee’s
Time/Service
Give/Use Raw
Materials
Give (Use) Machine
Time & Services
Get Finished
Goods Inventory
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Financing Cycle
5-17
Types of Entities
An entity is any class of objects about which
data is collected.
 The REA data model classifies entities into
three distinct categories:

1
Resources acquired and used by an
organization
2 Events engaged in by the organization
3
Agents participating in these events
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Types of Entities
Resources are defined as those
things that have economic value to
the organization.
 What are some examples?

–
–
–
cash
inventory
equipment
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Types of Entities
Events are the various business
activities about which management
wants to collect information for
planning or control purposes.
 What are some examples?

–
–
sales events
taking customer orders
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Types of Entities
Agents are the third type of entity in
the REA model.
 Agents are the people and
organizations that participate in
events and about whom information is
desired.
 What are some examples?

–
–
employees
customers
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Structured Relationships

The REA data model prescribes a
basic pattern for how the three types
of entities (resources, events, and
agents) should relate to one another.
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Structured Relationships
Resource A
Inflow
Get
resource A
Economic
duality
Resource B
Outflow
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Give up
resource B
5-23
Structured Relationships
Get
resource A
Participates in
Internal Agent
Participates in
External Agent
Participates in
Internal Agent
Participates in
External Agent
Economic
duality
Give up
resource B
Learning Objective 3
Draw an EntityRelationship (E-R)
diagram of an AIS
database.
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Sample E-R Diagrams
Employers
Managed
By
Part of
Supervisors
Manages
Departments
Customer
Orders
Part of
Sales
Part of
Cash
Receipts
Players
Part of
Teams
Part of
League
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Entity-Relationship Diagram



An Entity-Relationship (E-R) diagram is one
method for portraying a database schema.
It is called an E-R diagram because it
shows the various entities being modeled
and the important relationships among
them.
In an E-R diagram, entities appear as
rectangles, and relationships between
entities are represented as diamonds.
©2003 Prentice Hall Business Publishing,
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5-27
Entity-Relationship Diagram
Resources
Inventory
Events
(0, N)
Line items
Sales
(1, N)
(0, N)
Pays for
Cash
Increases
Cash
collections
Entity-Relationship Diagram
Events
Sales
Agents
(1, 1)
(1, 1)
Party to
(1, N)
Salesperson
(0, N)
Made to
Pays for
(0, N)
Customer
Received from
Cash
collections
Received by
Cashier
Developing an REA Diagram

1
2
3
Developing an REA diagram for a specific
transaction cycle consists of three steps:
Identify the pair of events that reflect the
basic economic exchange.
Identify the resources affected by each
event and the agents who participate in
those events.
Determine the cardinalities of each
relationship.
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Identify Economic
Exchange Events


The basic economic exchange in the
revenue cycle involves the sale of goods or
services and the subsequent receipt of cash
in payment for those sales.
The REA diagram for S&S’s revenue cycle
shows the drawing of sales and cash
collections events entities as rectangles and
the relationship between them as a
diamond.
©2003 Prentice Hall Business Publishing,
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Identify Economic
Exchange Events




In drawing an REA diagram for an individual
cycle, it is useful to divide the paper into
three columns, one for each type of entity.
Left column should be used for resources.
Middle column should be used for events.
Right column should be used for agents.
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Identify Resources and
Agents
Once the events of interest have been
specified, the resources that are
affected by those events need to be
identified.
 The sales event involves the disposal
of inventory.
 The cash collections event involves
the acquisition of cash.

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Identify Resources and
Agents
After specifying the resources affected
by each event, the next step is to
identify the agents who participate in
those events.
 There will always be at least one
internal agent (employee) and, in
most cases, an external agent
(customer).

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Specify Cardinalities
The cardinality of a relationship
indicates how many occurrences of
one entity in the relationship can be
linked to a single occurrence of the
other entity in the relationship.
 Cardinalities are often expressed as a
pair of numbers.
 The first number is the minimum, and
the second number is the maximum.

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Specify Cardinalities



The minimum cardinality of a relationship
indicates the fewest number of rows that
can be involved in that relationship.
Minimum cardinalities can be either 0 or 1.
A minimum cardinality of zero means that
each occurrence of the entity on the other
side of the relationship need not be linked to
any occurrences of the entity on this side of
the relationship.
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Specify Cardinalities

Sales
The minimum cardinality of zero in the
(0, N) cardinality pair to the left of the
customer entity in the customer-sales
relationship indicates that a given
customer need not be linked to any
sales events.
Made to
(0, N)
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Customer
5-37
Specify Cardinalities



Minimum cardinalities of zero are common
for relationships between two temporarily
linked events. Why?
Because at any given time the second
event in the pair may not yet have occurred.
A minimum cardinality of 1 indicates that
each instance of that entity must be
associated with at least one instance of the
other entity.
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Specify Cardinalities

Sales
The minimum cardinality below the
sales entity in the sales-customer
relationship reflects the general
business rule that each sales event
must be associated with some specific
customer.
(1, 1)
Party to
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Salesperson
5-39
Specify Cardinalities
The maximum cardinality of a
relationship indicates the largest
number of rows that can be involved
in that relationship.
 Maximum cardinalities can be either 1
or N.
 The N indicates that each row in the
table may be linked to many rows in
the other table.

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Specify Cardinalities

1
2
3
Three basic types of relationships
between entities are possible,
depending on the maximum
cardinality associated with each entity.
One-to-one relationship
One-to-many relationship
Many-to-many relationship
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Specify Cardinalities
Cardinalities are not arbitrarily chosen
by the database designer.
 They reflect facts about the
organization being modeled and its
business practices obtained during
the requirements analysis stage of the
database design process.

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Learning Objective 4
Build a set of tables to
implement an REA
model of an AIS in a
relational database.
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Implementing an REA
Diagram in a Relational
Database
An REA diagram can be used to
design a well-structured relational
database.
 A well-structured relational database
is one that is not subject to update,
insert, and delete anomaly problems.

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Create Tables
A properly normalized relational
database has a table for each entity
and each many-to-many relationship.
 From the previously discussed REA
diagram, nine tables would be
created: one for each of the seven
entities and one for each of the manyto-many relationships.

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Create Tables
Inventory
 Sales
 Salesperson
 Customer
 Cashier

Cash collections
 Cash
 Sales-inventory
 Sales-cash
collections

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Identify Attributes
for Each Table
Primary keys:
 Usually, the primary key of a table
representing an entity is a single
attribute.
 Other Attributes:
 Additional attributes are included in
each table to satisfy transaction
processing requirements.

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Implement One-to-One and
One-to-Many Relationships
One-to-One Relationships:
 In a relational database, one-to-one
relationships between entities can be
implemented by including the primary
key of one entity as a foreign key in
the table representing the other entity.

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Implement One-to-One and
One-to-Many Relationships
One-to-Many Relationships:
 In a relational database, one-to-many
relationships can be also implemented
in relation to databases by means of
foreign keys.

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Learning Objective 5
Read an E-R diagram and
explain what it reveals about
the business activities and
policies of the organization
being modeled.
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Documentation


REA diagrams are especially useful for
documenting an advanced AIS built using
databases.
REA diagrams provide two important types
of information about a database:
1
2
Information about the relationships among
data items
Information about the organization’s
business practices
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Information About
Database Content



REA diagrams explicitly depict the
relationships among the various data items
that are stored in the accounting database.
Flowcharts only show which files exist and
describe their basic characteristics.
Data flow diagrams (DFD) describe the
contents of each file in the system, but do
not explicitly show how those files relate to
one another.
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Information About
Business Practices

The cardinalities in REA diagrams
provide useful information about the
nature of the company being modeled
and the business policies that it
follows.
Events
Resources
Inventory
(0, N)
Line items
(1, N)
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Sales
5-53
Information About
Business Practices



The relationship between sales and
inventory is called line items and represents
the fact that each sale consists of one or
more items of merchandise.
Each item appears as a separate line item
on the sales invoice.
The quantity sold indicates that a customer
may buy more than one of a given item.
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Organization Specificity
of REA Diagrams
Due to the fact that S&S sells massproduced goods, its REA diagram
models the relationship between sales
and inventory as being many-to-many.
 An REA diagram for a rare art dealer
would depict the relationship between
sales and inventory as being one-tomany.

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Extracting Information
From the AIS
A complete REA diagram serves as a
useful guide for querying an AIS
database.
 Queries can be used to generate
journals and ledgers from a relational
database built on the REA model.

Sales
(0, 1)
(1, N)
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Cash
collections
5-56
Extracting Information
From the AIS




In a one-to-many relationship between cash
collection and sales, remittance number is a
foreign key in the sales table.
Each sales transaction is paid in full by a
cash collection event.
What is the query logic?
Total accounts receivable is the sum of all
sales for which there is no remittance
number.
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End of Chapter 5
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