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?
Expenditure Cycle for Fred's Train Shop In order for Fred to sell trains and train accessories, he first needs to have inventory to sell. Thus, as part of his overall engagement, Paul Stone has also prepared an REA model for the expenditure cycle of Fred's Train Shop. The following paragraph describes the expenditure cycle business processes of Fred's Train Shop: Fred deals with more than one supplier and often places orders for multiple items at the same time. Fred takes inventory and places orders every Monday. Fred's suppliers strive to provide outstanding service. Therefore, they never consolidate multiple orders into one shipment, but always ship merchandise the day after receiving an order. Usually, Fred's suppliers can fill his entire order in one shipment. Occasionally, however, a supplier may be temporarily out of stock of a particular item. In such cases, the supplier ships as much of the order as possible and then ships the out-of-stock item separately as soon as it becomes available. Fred pays for each order in full at one time; that is, he does not make partial payments on orders received. Some suppliers offer discount terms for early payments; Fred always takes advantage of such offers, paying individual invoices, in full, on the appropriate date. Suppliers who do not offer such discounts send Fred monthly statements listing all orders placed the prior month. Fred pays the entire balance indicated on the statement in one check by the specified due date. Question: 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? Solution: Event means any economic transaction which has impact on company's resources. It can be in the form of receipt of cash, purchases, sales etc. Resources under REA model is defined as anything which is limited in nature and holds utility. For example cash, assets, stock etc Agents refer to those persons or organizations involved in the performance of the events. They may be the customers, companies etc. The events here are: 1. Placing order for the equipments 2. Receiving the equipments 3. Payments against equipment received Resources are classified as 1. Equipments 2. Cash(Disbursement) 3. Orders 4. Receipt of payments Agents are classified as under: 1. Internal team: a. Employees which involves clerks concerned with purchasing and selling and the cashier 2. External team a. These involve the suppliers or the vendors. Solution to three subparts: a. There can't be direct link between two resources because the duality concept applies here that increase in one resource leads to decline in others and vice versa. So there is always an indirect relationship between two resources. If we are purchasing equipment we need to pay cash against it i.e. inflow of one resource leads to outflow of other resource which can't exhibit a direct relation. b. There are multiple employees in one department who are concerned with different aspects of business. Suppose internal agent is the purchase clerk, the external agent should be the selling clerk. It means that if one agent will receive something, the other would lose against it. c. Resources and agents are not interlinked because change in one does not affect the other and it's not of any use to find out this relationship
