RULES FOR COMBINING REA DIAGRAMS In Information Accountance Systems

Some entities appear in more than one transaction cycle diagram.
–Inventory appears in the revenue and expenditure cycles.
–Cash disbursements appear in the expenditure and payroll cycles.
–Employees (agent) and cash (resource) appear in all three cycles.

–These redundancies provide the basis for combining the diagrams. 

Merging redundant resource entities

–The REA diagrams for individual transaction cycles are built around basic give-get economic exchanges.

–Diagrams for individual cycles provide only partial information.

Example: The expenditure cycle tells you how the company gets inventory, but doesn’t tell you what becomes of the inventory.

–To integrate the cycles, we redraw the REA diagram to place common resources between the events that affect them.

–Reflects the economic duality that every resource must be connected to at least one event that increases the resource and at least one event that decreases it.

Inventory has been shown in green here, because it is increased by the expenditure cycle and decreased by the revenue cycle.

Cash is increased by the revenue cycle and decreased by both the expenditure and payroll cycles.

Merging redundant event entities

–Some events (e.g., disburse cash) may appear in multiple transaction cycles.

–Merging these multiple occurrences improves the legibility of the resulting diagram.

The integrated diagram shows the disburse cash event (shown in purple) is linked to both receive inventory (in the expenditure cycle) and time worked (from payroll cycle).

Difference between merging redundant events and merging redundant resources:

–Merging redundant resources does not affect any cardinalities.

–Merging redundant events alters minimum cardinalities associated with the other events that are related to the merged event.

–Cardinalities between inventory and each of the four events to which it is related are the same as before.

Cardinality between the cash disbursement event and other events with which it is linked are different.

The cardinality between disburse cash and receive inventory is now (0,N) instead of (1,N) as it was in the expenditure cycle.

The cardinality between disburse cash and record hours worked is now (0,N) instead of (1,N) as it was in the payroll cycle.

Reason lies in the semantics

–A resource entity can and usually is linked to multiple events.

- Example: Inventory is linked to a receive inventory event in the expenditure cycle and a sales (or deliver inventory) event in the sales cycle.

- Because both links are possible, none of the cardinalities in the individual diagrams need to change when the diagrams are merged.

An event that occurs in one cycle can be linked to:

–An event that is part of one transaction cycle; or

–An event that is part of another transaction cycle;

–But not both!

–Example: A cash disbursement is to pay an employee (payroll) or buy inventory (expenditure), but not both.

–The minimum cardinality associated with the other event must be zero in the integrated diagram.

–Remember: A minimum of one means that each instance of that entity has to be associated with at least one instance of the other entity.

–Each cash disbursement is linked to either a recording of hours or a receipt of inventory, but not both.

Merging two transaction cycles on a common event may also affect the minimum cardinalities between the merged event and the agent participating.

Same basic reasoning:

–A cash disbursement in the expenditure cycle is a payment to a supplier, so every cash event is linked to at least one supplier.

–A cash disbursement in the payroll cycle is a payment to an employee, so every cash event is linked to at least one employee.

–A cash disbursement in the two cycles combined is linked either to a supplier or an employee, but not both.

–Changes the minimum cardinality between event and agent from one to zero.

The cardinality between disburse cash and suppliers is now (0,N) instead of (1,N) as it was in the expenditure cycle.

The cardinality between disburse cash and employees (payees) is now (0,N) instead of (1,N) as it was in the payroll cycle.

• Every event must be linked to at least one resource.
• Every event must be linked to at least two agents.
• Every event that involves disposition of a resource must be linked to an event that involves acquiring a resource. (Reflects give-get economic duality).
• Every resource must be linked to at least one event that increases the resource and one that decreases it.