Page 57 - Accounting Information Systems

28 PART I Overview of Accounting Information Systems

in user information needs can be satisfied without obtaining additional private data sets. Users are constrained
only by the limitations of the data available to the entity and the legitimacy of their need to access it. Through
data sharing, the following traditional problems associated with the flat-file approach may be overcome:

Elimination of data redundancy. Each data element is stored only once, thereby eliminating data
redundancy and reducing data collection and storage costs. For example, customer data exist only once,
but is shared by accounting, marketing, and product services users. To accomplish this, the data are
stored in a generic format that supports multiple users.
Single update. Because each data element exists in only one place, it requires only a single update
procedure. This reduces the time and cost of keeping the database current.
Current values. A single change to a database attribute is automatically made available to all users
of the attribute. For example, a customer address change is immediately reflected in the marketing
and product services views when the billing clerk enters it.
Flat-file and early database systems are called traditional systems. Within this context, the term tradi-
tional means that the organization’s information systems applications (its programs) function indepen-
dently of each other rather than as an integrated whole. Early database management systems were designed
to interface directly with existing flat-file programs. Thus, when an organization replaced its flat files with a
database, it did not have to spend millions of dollars rewriting its existing programs. Indeed, early database
applications performed essentially the same independent functions as their flat-file counterparts.
Another factor that limited integration was the structured database models of the era. These models
were inflexible and did not permit the degree of data sharing that is found in modern database systems.
Whereas some degree of integration was achieved with this type of database, the primary and immediate
advantage to the organization was the reduction in data redundancy.
True integration, however, would not be possible until the arrival of the relational database model.
This flexible database approach permits the design of integrated systems applications capable of support-
ing the information needs of multiple users from a common set of integrated database tables. We should
note, however, that the relational database model merely permits integration to occur; integration is not
guaranteed. Poor systems design can occur under any model. In fact, most organizations today that
employ a relational database run applications that are traditional in design and do not make full use of
relational technology. The two remaining models to be discussed (REA and ERP) employ relational data-
base technology more effectively.

THE REA MODEL
REA is an accounting framework for modeling an organization’s critical resources, events, and agents
(REA) and the relationships between them. Once specified, both accounting and nonaccounting data
about these phenomena can be identified, captured, and stored in a relational database. From this reposi-
tory, user views can be constructed that meet the needs of all users in the organization. The availability of
multiple views allows flexible use of transaction data and permits the development of AIS that promote,
rather than inhibit, integration.
3
The REA model was proposed in 1982 as a theoretical model for accounting. Advances in database
technology have focused renewed attention on REA as a practical alternative to the classic accounting
framework. The following summarizes the key elements of the REA models.

Resources
Economic resources are the assets of the organization. They are defined as objects that are both scarce and
under the control of the enterprise. This definition departs from the traditional model because it does not
include AR. An account receivable is an artifact record used simply to store and transmit data. Because it is

3 W. E. McCarthy, ‘‘The REA Accounting Model: A Generalized Framework for Accounting Systems in a Shared Data Environ-
ment.’’ The Accounting Review (July 1982): 554–57.