Page 58 - Accounting Information Systems

C H A P TER 1 The Information System: An Accountant’s Perspective 29

not an essential element of the system, it does not need to be included in the database. Instead, AR values
are derived from the difference between sales to customers and the cash received in payment of sales.
Events
Economic events are phenomena that affect changes in resources. They can result from activities such as
production, exchange, consumption, and distribution. Economic events are the critical information elements
of the accounting system and should be captured in a highly detailed form to provide a rich database.
Agents
Economic agents are individuals and departments that participate in an economic event. They are parties
both inside and outside the organization with discretionary power to use or dispose of economic resources.
Examples of agents include sales clerks, production workers, shipping clerks, customers, and vendors.
The REA model requires that accounting phenomena be characterized in a manner consistent with the
development of multiple user views. Business data must not be preformatted or artificially constrained
and should reflect all relevant aspects of the underlying economic events. As such, REA procedures and
databases are structured around events rather than accounting artifacts such as journals, ledgers, charts of
accounts, and double-entry accounting. Under the REA model, business organizations prepare financial
statements directly from the event database. The following sales and cash receipts events for a hypotheti-
cal retailer can be used to illustrate the inherent differences between classic and REA accounting:

Sept. 1: Sold 5 units of product X 21 @ $30 per unit and 10 units of product Y33 @ $20 per unit to
customer Smith (Total sale ¼ $350). The unit cost of the inventory is $16 and $12, respectively (Total
CGS ¼ $200).

Sept. 30: Received $200 cash from customer Smith on account, check number 451.
In flat-file or non-REA database systems, the two events would be recorded in a set of classic accounts
like those shown in Figure 1-14. This involves summarizing the events to accommodate the account
structure. However, the details of the transactions are not captured under this approach.
An REA accounting system would capture these transactions in a series of relational database tables
that emphasize events rather than accounts. This is illustrated in Figure 1-15. Each table deals with a

FI G U R E
1-14 CLASSIC ACCOUNTING RECORDS IN A NON-REA SYSTEM

Accounts Receivable File

Customer Customer
Number Name Debit Credit Balance
23456 Smith 350 200 150

Cost of Goods Sold File

Acct
Number Debit Credit
5734 270

Sales File
Acct
Number Credit
4975 350