Accounting plays a vital role in today’s automated world. In order to improve the efficiency, there have been some major changes in the field of accounting during the past few years. McCarthy (1982) suggested a substitute approach in order to represent accounting information. Instead of concentrating on debits and credits, which neglect some essential data about economic events, he proposed to present the detail about every resource in the firm’s control, the events that bring a change in the amount of these particular resources, and the agents who are a part of these events (‘The Resources, Events, and Agents (REA) Approach’). This paper will critically examine the implementation of REA system to Wilson Football database.
REA is one of the accounting structures to present the information and link between company’s vital recourses, events and agents. This framework entails the distinctive feature of not only identifying the accounting data, but also classifies non-accounting data. REA saves all the information in a centralised database so that everyone has an access to similar information regardless of his or her department or designation. There are two different ways of implementing REA framework. It can either be relational or object-oriented database models.
Wilson Football is suggested to switch to REA modelling of the database rather than the traditional one. Wilson Football is an American based company that produces the world’s finest footballs. Wilson Football factory was opened in 1995in Ada Ohio, claiming to produce the best quality footballs in the world. This factory is label as the world leader in manufacturing of leather game footballs. Every National Football League game ball that appeared in Super Bowl have only been using Wilson’s Football since 1941. REA can prove to be much more beneficial for the company in numerous ways and overcome the problems of the conventional database system approach. With REA, the managers focus their view on the intricate process of the organizations highlighting most fundamental elements and activities that enhance valuable resources hence enhancing value for consumers. It will also entail the managers to carefully analyse and omit the non-value adding activities. Since Wilson Football claim to produce the best quality footballs in the world, REA can help them maintain and improve their quality assurance procedure and increase the efficiency of all resources and events included in it. The company, through REA, will be able to analyse in-depth the key differences amongst the three types of events economic, business, and information. Through this understanding of the events, managers at Wilson Football will formulate the documentation at various levels of detail, scrutinize the company’s key business procedures, and communicate numerous types of business information to the relevant personals.
Resources, Events and Agents at the Wilson Football Factory:
The company through its dealers located all around the globe receives the orders from its sales department. After the order is receive, the request for purchase of the inventory is then forward to the concerned purchasing agent. The purchasing agent buys high quality raw materials like inflated rubber bladder and pebble-grained leather. The manager at the purchasing department, supervisors the inventory of the raw materials ensuring a constant supply of the raw material and organizes a purchase requisition whenever necessary. The raw material is then send to the quality assurance department for inspection. The approved material is passed on to the printing department, which prints logo and colours the outer body of the football before converting it into the final shape. It is then passed onto the manufacturing unit. The workers of the manufacturing unit then manually incorporate the raw materials into footballs. After this, the footballs are forward to the inspection unit, where strict quality control is ensured. Only those footballs are passed onto the packaging department those meet the high standards of the Wilson Footballs Factory. The packed and approved orders are then delivered to the delivery unit that ships them out to the dealers. The company receives cash when the customer clears the order. The following diagram shows a few resources, events and agents of Wilson Football.
Resources Events Agents
Discuss the economic duality that occurs in your company:
In any REA modeling of the database, there is an economic duality that occurs. The model should include at least two economic events which constitute of giving and receiving actions leading up to an increase or decrease in the resources of the company. Each economic activity have an dual effect when it comes to resources, events and agents. In Wilson Company the following diagram depicts the duality that occurs in the various business segments:
The concept of economic duality that occurs in the process of the Wilson factory is clear from this diagram. Starting off with the customers who place an order at the company. The company provides them with the desired number of footballs that reduce the finished goods inventory of the company. However, the customer pays back the company with cash that is added to the cash receipts journal increasing the company’s cash figures. Moving on to the workers, here we can see that the workers provide the company with their services in the form of mental or physical labor. It adds to company’s tangible or intangible assets. Later the company pays them with wages in return of their services consumed by the factory. This leads to a reduction in the cash of the firm. Last but not the least we examine the economic duality that occurs between the factory and its suppliers. The purchase agent places an order for raw material to the supplier. The supplier provides the factory with the raw material adding up to its raw material inventory figures and receives cash.
REA Modelling for the Wilson Football Factory:
We will define REA model for the sales process that is carried out at the Wilsons Football Factory. After the Wilsons Footballs dealer places the order, the sales department checks the finished good inventory for the availability of the footballs. The sales department manager then makes a sales order receipt and forwards it to the warehouse supervisor. The supervisor gathers the defined order and gives it to the delivery department for shipment to the final customer. The department manager then formulates the final billing and the delivery notifications. Willy then prepares the bills of lading and shipping notices. The warehouse upon receiving the final billing updates the finished goods inventory ledger to show a reduction in the goods. The sales manager then orders the stock release, makes the invoice, and sends it to the customer. He also updates sales journal and forwards the information of the invoice, sales order, stock release, and delivery notifications to the Account Receivables (AR) department. The concerned authority in the AR department then updates the information on the system and also revives the AR ledger. Later when the customer clears the order, cash/checks are received and the AR ledger and the company cash receipts journal /bank account are updated accordingly.
The REA Model for the Pay Roll process for the Wilsons Football Factory is defined hereafter. The HR Department supervisor collects the time/attendance sheet of the employees at Wilsons Footballs Factory every month. This information along with a personal employee ID is forward to the Payroll Department. The concerned person at the Payroll Department submits all this information on the central database along with the working hours of each employee. After the pay slips have been generated, a duplicate is also forward to the AP Department. They pay slips are then signed by the payroll manager and given to the employees. The manager of the AP creates a cash receipt and is posted to the general ledger. One check is written and then signed by the General Manager and is deposited to the cash account. After which the wages are released to all the employees account.
The last REA model is presenting fixed assets acquisition of the Wilsons Football Factory. In order to purchase new assets the concerned department manager needs to prepare a request for purchase of the asset along with stating the reason. The request is then forward to the manager at purchasing department, who creates a purchase order based on that request he received. The order is then forward to the supplier, and the AP department also sends a notification regarding the purchase. The department after receiving the asset and the invoice from the supplier sends a receiving notification to the AP and to the inventory department for the updating of the inventory. AP department then creates cash receipts for the supplies and cash disbursement clerk, which creates and forwards a check to the supplier. General Ledger is updated for every activity.
Enterprise-Wide REA model (Integration) For the Wilsons Football Factory:
The above diagram depicts the integrated REA model for the Wilsons Football Factory. This shows that the resources, events and agents of any business is interlinked and interconnected with each other.
Competitive advantages of using the REA approach for the Wilson Football Factory:
In order to assess the competitive advantage of using REA as a database modelling for Wilson Football Factory, we would imply the value chain analyses. Value chain analyses highlight those activities and procedures that add value to the company’s product and services. Hence in order to increase their efficiency and retain their competitive advantage in the market the company needs to identify and prioritize those activities identified as most valuable by the value chain. Wilson Football can take the full benefit of the value chain analysis by widening its horizon and its capability of creating maximum value. It can fully utilize its potential by focusing and enhancing those activities that are defined as most valuable by the value chain. Wilson Football can also integrate any special requirement or personal preferences of the customers or accommodate the supplier by being flexible in the production process. It can increase its compatibility by increasing its already high quality and reducing its resources wastage activities. The conventional method does not incorporate the value chain analysis, which was previously carried out as a separate guiding system excluding the accounting information. This lead to data inconsistency, omit data and numerous other systematic problems. However REA as a basic core system reflects and contains all information ensuring quick, accurate and value adding decision-making process within the company. The managers at the Wilsons Football Factory can identify the primary economic events and focus on increasing their efficiency and reduce or omit non-value adding activities in order to reduce wastage of resources. These resources that are conserve from non-value adding activates can be invested in other more beneficial activities in order to increase the competitiveness of the company. The firm can also focus on ‘improving the operational efficiency of individual departments thus generates excess capacity that can be redirected to increase the overall productivity of the firm’ (Hall 2011). The REA model also ensures a pertinent, apt and correct communication and information system for concerned personals so that there can be a quick decision making regarding the crucial matters of the company. This will also result in improved consumer services and improve the manufacturing process as well as the quality of the final product. As REA stores and presents accounting and non-accounting data the decision makers of the Wilson Football Factory can make more informed decisions and create relevant policies in order to achieve the company’s objectives. This storage system also reduces the need for creating numerous data system and the company can have similar information for all the departments through the centralized data system.
This paper has carried out an in-detailed analysis of REA database modelling for the Wilsons Football Factory. It has highlighted the relationship between the three most important economic entities of any business, resources, events and agents. By focusing on these economic activites, any company can streamline their procedures and increase their efficiency by eradicating the non-value adding procedures. This particular information system fulfils numerous particular requirements of the business entities and provides them with a wide range of information. The concerned decision makers will be in approach of the comprehensive data to support various information requirements that occur during the system’s life. REA database modelling aims to eliminate the drawbacks and the numerous loopholes of the traditional information system. Hence this information system is preferable to the conventional database modelling.
Works Cited
HALL, JAMES A. Accounting Information Systems. N.p.: South Western Cengage Learning, 2011. Print.
McCarthy, W.E 1982. The REA accounting model: A generalized framework for accounting systems in a shared data environment. The Accounting Review (July): 554-77.
