FAQ: Relational Databases in Accounting Systems

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1 Question 1: What is the definition of a schema as it relates to a database? What are the three levels? Answer 1: A schema describes the logical structure of a database. The three levels of schemas are the conceptual, the external, and the internal. The conceptual-level schema is the organization-wide view of the entire database. It lists all data elements and the relationships between them. The conceptual-level schema for the revenue cycle database would contain information about customers, sales, cash receipts, sales personnel, cash, and inventory. The external-level schema consists of a set of individual user views of portions of the database, each of which is also referred to as a subschema. The external-level schema for the revenue cycle would include a number of users, salesmen, accounts receivable personnel, cash management personnel, production and inventory control personnel, with each having their own schema meeting their informational needs. The internal-level schema provides a low-level view of the database. It describes how the data are actually stored and accessed, including information about record layouts, definitions, addresses, and indexes. The internal-level schema for the revenue cycle would include the following: Inventory record layout specifying item number, description, and cost Sales record specifying invoice number, sales amount, customer number, and sales item number Question 2: What are three commands (languages) used to create, change, and query a database management system (DBMS)? Answer 2: The three sets of commands used to perform the functions of creating, changing, and querying a database are referred to as data description language (DDL), data manipulation language (DML), and data query language (DQL). The DDL is used to build the data dictionary, initialize or create the database, describe the logical views for each individual user or programmer, and specify security parameters for records and fields. The DML is used for maintaining the data, which includes such operations as 1

2 updating, inserting, and deleting portions of the database. The DQL is used to query or interrogate the database. Whereas the DML is used to change the contents of the database, the DQL retrieves, sorts, orders, and presents subsets of the database in response to user queries. Most DQLs contain a fairly powerful but easy-to-use set of commands that enable users to satisfy many of their information needs without a programmer s assistance. Many DBMSs also include a report writer, which is a language that simplifies report creation. Question 3: What are the four basic requirements of a relational database design? Answer 3: The four basic requirements of a relational database design are the following: Every column in a row must be single valued. In a relational database there is one, and only one, value in any given cell. An example is a sales invoice that contains more than one inventory/sales item. The invoice number is the same for each item on the invoice, and the item numbers are detailed in a sales/inventory table created for the invoice. Primary keys cannot be null (blank). The primary key is the attribute, or combination of attributes, which uniquely identifies a specific row (record) in a database. A nonnull value for the primary key indicates that a specific object exists and can be identified by reference to its primary key value. Foreign keys, if not null, must have values that correspond to the value of a primary key in another table. Foreign keys are used to link rows in one table to rows in another table. For example, the customer number is a foreign key in the sales table that links each sales transaction with the customer who transacted the sale. All nonkey attributes in a table should describe a characteristic about the object identified by the primary key. An example is the data of a sales transaction in a sales table. Question 4: Relational database management systems have had what effect on the use and access to accounting information? Answer 4: The most significant effect that relational database management 2

3 systems have on providing accounting information is in the way accounting information is used in decision making. The difficulty of providing ad hoc queries in accounting systems based on traditional files means that accountants acted as information gatekeepers. Financial information was readily available only in predefined formats and at specified times. Relational databases provide query languages that are powerful and easy to use. Thus, managers must not spend their time figuring out how to retrieve information. Instead, they can concentrate solely on specifying what information they want. With relational databases, managers can get financial reports for whatever time periods they want and in a meaningful format for their specific purpose. Relational databases can also accommodate multiple views of the same underlying information. For example, tables storing information about assets can include columns for historical costs, current replacement costs, and market values. Relational databases can provide the capability of integrating financial and operational data. For example, data about customer satisfaction collected by surveys or interviews could be stored in the same database used to store information about current account balances and credit limits. Thus, managers can have access to a broader range of information for strategic decision making. Possible future uses of relational databases in accounting information systems could lead to the elimination of double-entry accounting. Double-entry accounting was needed to provide a check and balance for ensuring the accuracy of data being recorded. Relational databases can provide the check and double-checking required without having to create a double entry for each accounting transaction. Relational databases could also reduce the amount of time spent on producing external financial reports by allowing external users limited access to the database to retrieve the information they require. Question 5: What are the benefits that can be derived from having a relational DBMS for accounting information? Answer 5: The benefits of having a relational DBMS for accounting information include the following: DBMS combines multiple master files into one database, making information more readily available and providing more flexibility for reporting those data. 3

4 It eases the sharing of data across departmental functions for authorized users. Reports can be revised easily and generated as needed, and the database can be easily browsed to research a problem or obtain detailed information underlying an accounting report. Minimal data redundancy and data inconsistencies are minimized most data are stored in the database in one place, eliminating the inconsistencies resulting from having the same data in multiple master files maintained by different departments and functions. It allows for the flexibility of changing programs and reports independent of the data and other uses of the data. The central management of data ensures the accuracy of the data by having a database administrator who is responsible for coordinating, controlling, and managing the data. The cross-functional analysis makes tailoring reports fit the need of each user in a more timely fashion, and it is less costly. Question 6: What are the three basic types of entities in an REA data model? Answer 6: The three basic types of entities in an REA data model are resources, events, and agents. Resources are any assets the organization acquires and uses for the purpose of conducting its business. They have economic value to the organization and include, but are not limited to, inventory, cash, equipment, land, and buildings. Events are the various business activities in which management wants to collect information for planning and control. Each event must be linked to at least one resource entity, at least one other event, and at least two participating agents. An example of this is the purchase of inventory, which includes the receipt of goods from a supplier. This increases the quantity of on-hand inventory, which is followed by the receipt of payment from a customer, which increases the amount of cash. Event is the purchase of inventory. One resource includes the goods received. One other event increases quantity of on-hand inventory. Agent is the goods supplier (external agent). Event is the receipt of payment from a customer. Agent is the customer (external agent). Another resource is caused by the increase in the amount of cash. 4

5 Agents are people and organizations that participate in the operations of the events. This includes vendors, customers, and employees. Question 7: What are the steps for developing a resources-events-agents (REA) model for a specific transaction cycle? Answer 7: Identify the events in which you want to collect information. Every REA model must include the two events that represent the basic giveto-get economic exchange performed in that particular transaction cycle. The give event represents an activity that reduces the organization's quantity of a resource that has economic value. The get event represents an activity that increases the organization s quantity of an economic resource. There may be other events that you are interested in planning, controlling, and monitoring that also need to be included in the REA model. The next step in developing an REA model is identifying the resources affected by each event and the agents who participate in those events. This involved answering the following questions: What economic resource is reduced by the give event? What economic resource is acquired by the get event? What economic resource is affected by a commitment event? In addition to identifying the resources affected by each event, it is also necessary to identify the agents who participate in those events. There will be at least one internal agent (employee) and one external agent (customer or vendor) who participate in each event. Determining the cardinalities of each relationship is the final step in drawing an REA model. Cardinalities describe the nature of the relationship between two entities by indicating how many instances of one entity can be linked to each specific instance of another entity. For example, in a sales transaction, the cardinalities define how many sales transactions can be associated with each customer and how many customers can be associated with each sales transaction. The relationship can be one-to-one, one-to-many, or many-tomany between entities. Question 8: What three steps are used to implement an REA model in a relational database? 5

6 Answer 8: An REA model is used to design a well-structured relational database. The three steps are the following: Create a table for each distinct entity in the model and for each manyto-many relationship. A well-designed relational database has a table for each distinct entity and for each many-to-many relationship in an REA model. Assigning attributes to appropriate tables is the next step. The database designer needs to interview users and management to identify which facts need to be included in the database. The REA model is also used to determine in which table or tables to place the attributes, depending upon whether that attribute is a primary key or is just a descriptive attribute. Use foreign keys to implement one-to-one and one-to-many relationships. Although relationships can be implemented as separate tables in a relational database, it is more efficient to implement them by means of foreign keys. A foreign key is an attribute of one entity that is itself the primary key of another entity. An example is a customer number that might appear in both the customer and sales tables. It would be the primary key of the customer table but a foreign key in the sales table. Question 9: Why is it important to have users participate in developing the REA data model? Answer 9: REA data modeling is not an easy task. Within any company, the terminology used by various users in different departments can have a totally different meaning. For example, accounting may use the term orders to refer to the total dollar amount of orders per time period, whereas the sales department may use the term to refer to individual customer orders. Even within accounting, the same term may have different meanings. The term product may mean a single finished goods item sold to a customer, or it may mean an item not yet completed that has an unfinished goods item number. By including users in the development of the REA data model, a dictionary of terminology can be developed so that each term used to define an entity can be uniquely assigned and identified to mean the same thing to all users. Question 10: Is it necessary to include the mailing invoices to customers and recording invoices received from suppliers as events in the REA model? 6

7 Answer 10: No, the actual act of printing invoices and mailing them does not change any value in the database. It is simply an information processing event that retrieves information from the database. The REA data model is used to model the basic value chain business activities of an organization. Adding activities to the REA data model about those events and about the resources and agents associated with them is not considered a primary value chain activity. 7