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Resource-Event-Agent REA Modelling in Revenue Information System RiS

Development: Smart Application for Direct-Selling Dealers and SMEs

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JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 43

Resource-Event-Agent (REA)
Modelling in Revenue Information System
(RiS) Development: Smart Application for
Direct-Selling Dealers and SMEs
1
Khairina Rosli, 2Aidi Ahmi, 3Liana Mohamad
1&2
College of Business, Universiti Utara Malaysia, UUM Sintok, Kedah, Malaysia.
Faculty of Management and Information Technology, UCSI University, Kuala Lumpur.
[email protected]

Abstract
Revenue Information System (RiS) is the product of a research project based on a case study
on direct-selling sales point. This study is to determine the resources, events, and agents for
Resource-Event-Agent (REA) data model as a technique of specifying and designing
accounting information system and also to develop a system prototype based on the REA
model. RiS is built based on the REA data model since it captures only essential aspects of
economic phenomena. The idea is to build an information system application that supports
business process in real-time and the REA data model is chosen to ease the understanding of
the database. In this paper, the researchers described the approach and process in planning
and performing the project transformation and conversion from the legacy information
systems to the new updated information system. The researchers applied the REA model
approach and process into a real case study of sales order and cash receipt systems. The result
shows that REA model captures only essential aspects of economic phenomena and thus, (1)
models are kept concise and easy to understand, (2) models can be used for many
applications, and (3) derived artefacts are always consistent by means of the models. This
new developed system has resulted in the improvement in business processes efficiency, the
timely collection of cash and the provision of timely account information for decision
making. Database design in business information system structured by accountants and those
who are involved in the business itself will create a meaningful system as their business
needs are fulfilled.

Keywords: Accounting Information System (AIS), Resource-Event-Agent (REA), Direct

Selling

1. INTRODUCTION

The revenue stream process supports the direct functions for business in supplying and
selling products to customers. The key to effectively manage and implement this business
process lies in the technology (Cavitt, 1998). Thus, revenue stream systems should be
integrated in a single, non-redundant data repository. One of the major benefits is that all data
are updated only once, stored in one place, and provide a single source for reports.
44 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

With an integrated system, data duplication is eliminated; all reports reflect identical content,
data fields are standardized, data integrity problems are eliminated and system maintenance is
reduced (Walker and Johnson, 2001).

Companies should give quick response to competitor actions and change their business
models to make a good, wise and effective decision towards product placing, fulfilling the
orders and other critical elements (Hollander et al. 2000). To compete successfully,
companies must improve the quality, speed and responsiveness of their customer service.
Attaining these objectives requires information systems that support strategic management of
revenue drivers (Walker and Johnson, 2001). The information systems comprising the
revenue cycle are the key components to eliminate gaps between ordering, distribution and
payment. It also represents a major focus of any information systems project design to
improve customer satisfaction, organisational efficiency and profitability. Seeing that these
technology solutions are an integral part of an organisation's success, this research develops a
revenue information system using REA data modelling that can help business especially
accountants and managers of small businesses that possess limited information technology
(IT) knowledge to manage accurate, reliable and timely information available to support
individual customers and business requirements in revenue cycle. REA model is a means of
specifying and designing accounting information systems that serve the needs of all the users
within an organization (Hall, 2004).

2. PROBLEM STATEMENT

Direct Selling Sales Point is brought into existence mainly to support sales and ease the
supply of goods to direct selling customers in an area, besides disseminating information and
training to sole distributors. In acknowledging the fact that Sales Points are the root in the
distribution of supplies, the nearest reachable stores to customers and furthermore contribute
to the successful marketing of direct selling, there is indeed a need to develop a system that
could fulfil the Sales Point requirements.

Sales Point is currently being fully operated by a manager and an employee. All of the
business activities and related information processing operations such as providing goods to
customers and collecting cash in payment for those sales are done manually. Sales Point is a
time consuming process and create problems for those involved in terms of recording their
sales transactions with the customers. Pens are used to write tediously the transaction
particulars on duplicated receipt, and all calculations are performed manually using
calculators. It is possible for undetected errors to be introduced into the current system for
quite some time.

Furthermore, all data regarding their customers and products are recorded in separate books.
It is hard for the employee to access the data needed quickly as another customer comes to
the Sales Point through this traditional method. In addition, in the direct selling business, in
order to record a sales transaction for a customer, the employee has to write all of the
information needed such as customer’s and distributor’s name, distributor’s code, upline’s
name and code, product code, product promotional value (PV), product bonus value (BV) and
product price. Other problems that arise are in documenting the reports to the Distributor
Centre and generating a proper monthly financial statement.
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 45

The details of the business process by the Sales Point are shown in the Context Diagram in
Figure 1, Data Flow Diagram (Figure 2), and the Flowchart in Figure 3. It is analysed further
in the Current System Analysis. Hence, this study develops a new system prototype that
enables problem solving solutions to the problems through the case study of Sales Point.

Order inquiries

Customer Goods

Revenue
Information
Payment
System

Receipt

Figure 1: Context Diagram

Order inquiries
Customer 1.0
Sales order
entry

Order
details
Goods
2.0
Prepare
Cash/ goods
Check/
Voucher

Receipt Sales
details
3.0
Cash
collection Distributor
Centre
Sales details

Figure 2: Data Flow Diagram

46 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

Customer

Record
sales order
and prepare
receipt

3
2
N
Receipt 1

Distributor
Centre

Customer

Figure 3: Flowchart

3. OBJECTIVE

The objectives of this study are as follows:

1. To determine the resources, events, and agents for REA data model as a means of
specifying and designing accounting information system.

2. To develop a prototype of computerised database revenue information system that

supports business process in real-time for Sales Point. This study focuses mainly on the
revenue cycle namely sales and cash collection due to the core business activities carried
out by the Sales Point.

4. SIGNIFICANCE OF THE STUDY

This study is very significant in its objective to develop a revenue cycle model data by the
use of REA modelling, and is meant to help and fulfil the needs of businesses in adopting
information technology applications. The REA model is an alternative accounting framework
used for modelling an organisation’s critical resources, events, and agents and also the
relationships between them (Hall, 2004). The development of the revenue information system
could contribute to the efficiency in business processes.
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 47

The potential for such a system to improve the processing of customer orders, to support
timely collection of cash, and to provide timely account information is immense. The
implementation of the system could also simplify and reduce cost in the revenue and cash
collection cycle. This is beneficial to the accounting cycle process.

Furthermore it could contribute to the application of knowledge of Accounting Information

System educators, and introduce lecturers or instructors to the real world environment,
specifically on how the REA data modelling method is utilised and how the implementation
of IT could be integrated into the accounting cycle. An integrated information system
requires a good data modelling technique, thus REA data model is a solution for this situation
which uses semantic modelling. The availability of multiple views offered by the REA model
allows flexible use of transaction data and enables the development of accounting
information systems that are free of the weaknesses in narrowing the role of accounting
information.

Moreover, as the role of accountants is crucial in database design, accountants should be

involved in all stages of designing the database (Romney and Steinbart, 2002, Hall, 2004).
The role of the accountant as a system designer is important in determining the nature of
information required, its sources, its destination, and the accounting rules that need to be
applied. Therefore, this study would be useful to help accountants and managers to determine
the information and business processes that truly provide the value-added element in the
representation of the business database model.

5. LITERATURE REVIEW

A. Accounting Information System

An accounting information system (AIS) is the system that collects, records, stores and
processes data to keep and maintain its accounting system. This includes the purchase, sales,
and other financial processes of the business. The purpose of AIS is to accumulate data and
provide decisions makers (investors, creditors, and managers) with information to make
decisions (Romney and Steinbart, 2002). The approach or tool used to produce accounting
information includes manual systems, complex computer and IT system or a combination of
these two extremes. And as for the computer system approach, in order to ensure the
consistent application of technology, users must have and use documented processes and
procedures that are repeatable, understandable, and feasible (Orshesky, 2003).

Business software solutions based on a Relational Database Management System (RDBMS)

has become emerging standard in application software (Cavitt, 1998 and Moncrief and
Cravens, 1999). Database implies that an organisation acquires and maintains an extensive
file of information on the customers and potential customers. The database will track
purchases of customers and even predict when the customer is in need of a reorder. Database
marketing is foreseen to be a routine and an absolute necessity (Moncrief and Cravens, 1999).
Some other advantages of relational database technology are greater flexibility and access to
information, easier reporting of information and more efficient system performance (Hall,
2004 and Cavitt, 1998).
48 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

B. Revenue Information System

The revenue cycle is defined as a recurring set of business activities and related information
processing operations associated with providing goods and services to customers and
collecting cash in payment for those sales (Romney and Steinbart, 2002). The primary
external exchange of information in revenue cycle is with customers. One of the objectives of
accounting information system in the revenue cycle is to support the performance of the
organisation’s business activities by efficiently processing transaction data. Basically, there
are four revenue cycle business activities namely; (1) sales order entry, (2) shipping,
(3) billing, and (4) cash collections. Meanwhile, Walker and Johnson (2001) defines the
revenue stream in detail, which includes sales order receipt and processing, credit
verification, pricing, invoicing, revenue recording, return processing, and cash collection.

The second function of accounting information system in revenue cycle is to provide

adequate control of the business. The controls ensure that all transactions are properly
authorised, valid and recorded accurately. The controls include the safeguard of assets (cash,
inventory, and data) from loss or theft and are to ensure that business activities are performed
efficiently and effectively (Noor Azizi, et al., 1998 and Romney and Steinbart, 2002).

The third function of the accounting information system in revenue cycle is to provide useful
information for decision making. Sales and cash collection involve the decisions and
processes necessary for the transfer of the ownership of goods and services to customer, for
example, to respond to customer inquiries and determine inventory availability. Walker and
Johnson (2001) stated that revenue stream information systems provide the foundation for
processing of clerical functions, such as billing and journal entries; linking sales, order
processing, order status, customer service and cash receipts; customer relations support;
control of uncollectible accounts; and reporting to management and regulatory agencies.

C. Price Promotions

The revenue stream information system must be able to track promotional programs in a
timely and accurate manner. Major system deliverables for promotion monitoring are the
remote access for updating or entering price promotion data which include price editing and
validation processes. This is very much crucial as prices of goods fluctuate according to
market prices and are manipulated by the demand and supply theory. Other than that,
flexibility in price reductions is also important, including the ability to run simultaneous price
promotions (Walker and Johnson, 2001) and integration of price promotion rules to monitor
legal compliance. Price promotion is done as part of marketing strategy to attract customers
and gain more revenue however it must be made within a feasible range of price.

D. Revenue reporting

Accounting information systems are meant to assist users in providing information for
decision making tasks. Revenue reports are tools that allow management to monitor company
performance. These reports provide information to measure current performance and to
analyse performance against goals.
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 49

In addition, revenue reports allow management to make decisions regarding pricing

strategies and to be proactive in dealing with changing market conditions. Major system
deliverables for revenue reporting include (Walker and Johnson, 2001) facilitating the
definition and documentation of management information requirements; a standardised
reporting system that meets specific periodic reporting requirements; query capabilities for
customised reports to authorised users; and accurate, timely and flexible journal updates to
the general ledger.

E. Resource-Event-Agent (REA) Model

The REA model is a technique for capturing information about economic phenomena. It
describes a business as a set of economic resources, economic events and economic agents as
well as relationships among them. REA was proposed by William E. McCarthy in 1982 as a
theoretical model for accounting to support a wide variety of information. Although the REA
model was proposed as a result of the study of accounting theories, it can be applied to many
other business domains. It can be used for inventory control by assigning goods to resources,
transfers to events, and owners to agents. It can also be used for payroll administration and
management purposes by assigning lengths of time to resources, time cards to events, and
employees to agents. The REA model is a promising modelling technique for developing
business applications because it has a solid foundation and it can be applied to nearly all
businesses (McCarthy, 1982).

McCarthy demonstrated that by capturing the essential characteristics of an operating event,

multiple classification schemes could be supported, including traditional accounting
information such as journals, ledgers and financial statements (Hollander et al, 2000). Since
1982, REA theory has expanded considerably in accounting research, practice and education.
However, the rate of this progress and the assimilation of REA work into the mainstream
ideas of accounting were not sufficiently powerful as most theoretical and practical changes
of Entity-Relationship (E-R) modelling.

Thus, McCarthy (1982) extended his E-R approach, exploring the issue of database design in
a larger organisational context. He emphasised that a change in perspective is needed if
accounting is to become a constituent part of an enterprise database system rather than
remaining an independent and non-integrated information system. He explained that the view
modelling and view integration phases of database design require accounting phenomena be
characterised in terms of compatibility with non-accounting decision use. He proposed the
REA accounting model such as characterisation be as presented in Figure 4.
50 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

Economic Internal
Resource Agent

Economic
Event
Participant
Outflow External
Agent
Give

Duality
Take Internal
Agent

Economic
Event
Inflow Participant

External
Agent
Economic
Resource

Figure 4: REA Template

Social science models for generating and evaluating research projects create a less-than-
hospitable environment for researchers who are trying to create new constructs, methods, and
tools for building better information systems and there is no place where this is truer than in
academic accounting. As the result of this narrow attitude in accounting research, most
conceptual or E-R oriented research concentrated either in ‘system accounting’ journals or in
journals outside of accounting (McCarthy, 1999).

The use of E-R modelling in particular and semantic modelling in general has had very
noticeable effects in accounting over the last 30 years. The most pronounced impact has been
on accounting education where REA models of the type first proposed by McCarthy (1979,
1982) have permeated the undergraduate curriculum. However, the effect of REA on
accounting practice has been less pronounced, partially because of technological
impediments. But due to the evolving era of information technology, major Enterprise
Resource Planning (ERP) vendors have made a call to discuss REA. International Business
Machines Corporation (IBM Corporations) for instance, has implemented a system following
the REA pattern (Cherrington et al., 1996) and a supply chain system is developed based
exclusively upon REA (Haugen and McCarthy, 2000). These developments prove that the
ideas of REA are contributing to both the literature and the economy (David et al., 2005).
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 51

6. METHODOLOGY

The development of Revenue Information System is implemented by the use of the System
Development Life Cycle (SDLC) method which is similar to the database design
methodology for REA. The database design methodology for which REA was proposed by
McCarthy (1979, 1982) has four steps: (1) requirements analysis, (2) conceptual design, (3)
implementation design, and (4) physical design.

Furthermore, similar to REA methodology, SDLC consists of five phases (Romney and
Steinbart, 2002) which are: (1) system analysis, (2) conceptual design, (3) physical design,
(4) implementation and testing, and (5) operation and maintenance. Figure 5 illustrates the
flow of RIS research methodology that utilised SDLC. SDLC is chosen as a methodology for
RIS because it is a continuous process of creation, maintenance, enhancement and
replacement of information system (Rob and Coronel, 2007). SDLC is an iterative rather than
sequential process, thus the methodology in developing RIS is done frequently and
repetitively until users and researchers are agreeable and satisfied with the system. Rob and
Coronel (2007) stated that successful information systems are subject to frequent evaluation
and revision within this framework of SDLC. The methodology used in each phase of SDLC
is explained in depth in the next sections.

System analysis

Conceptual
design

Physical design

Implementation
& Testing

Operations
& Maintenance

Figure 5: System Development Life Cycle

52 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

A. System Analysis

The development of RIS starts with the system analysis phase. During system analysis, the
current system is surveyed through face-to-face interviews with the Sales Point manager and
through observations to define the nature, scope and to understand the current business
activity, its strengths and weaknesses. An adequate understanding of the current system
environment is essential to determine the scope of changes and opportunities for
improvements in order to the design of the revenue stream. Discussion sessions with user are
useful to determine the scope of the project and to prepare a preliminary plan. The primary
objective of interviewing key personnel is to identify opportunities for improvement within
the scope of the revenue stream project, not only in relations to current business practices, but
also in anticipation of future developments (Walker and Johnson, 2001).

The questions used in interviews with the personnel focuses on numerous issues including:

 The nature, scope and objectives of the Sales Point

 The events/ activities involved in the business process
 The roles performed and who/what agents perform the roles in executing each events
 The kind of resources involved and how much they were used
 The place where the events occur
 The interrelationship between resources, events and agents
 The problems in executing the events that may cause risks
 The user requirements and expectations for the new system

The information and recommendations gathered in this process provide a framework for
future changes in the design structure of the revenue stream. An in-depth study of the
proposed system is then conducted to determine its feasibility. The information needs of
system users are identified and documented. These needs are used to develop and document
system requirements for the new system.

B. Conceptual Design

During the conceptual system design phase, appropriate design alternatives are identified and
evaluated by utilising the REA model. Detailed specifications outlining what the system will
accomplish and how it is to be controlled are also developed. In analysing the business
process and developing the REA model, we adopt the steps developed by Hollander et al.
(2000): (1) understand the organisation’s environment and objectives, (2) review the business
process and identify significant strategic operating events, (3) analyse each event to identify
the event resources, agents and locations, (4) identify the relevant behaviours, characteristics
and attributes of the events, resources and agents, and (5) identify and document the direct
relationships among the resources, events and agents.

C. Physical Design

In the physical design phase, the broad user oriented requirements of the conceptual design
are then translated into detailed specifications that are used to code and test the system. The
new proposed system is developed by the use of Windows based environment. Microsoft
Access and Visual Basic software programmes are used to develop the new system prototype.
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 53

Thus the users can run the system with other applications at the same time on one computer.
The input and output documents are designed and procedures are also developed into the new
system. The function and features of the system include data entry and updates, queries and
forms that provide easy mechanisms for adding, updating and searching information. To
make the system more user-friendly, graphic user interface (GUI) are included. In addition,
the new system is also able to produce various types of reports and catalogues.

D. Implementation and Testing

In the implementation and testing phase, all the elements and activities of the system are
combined together. Any new hardware, software and processing procedures is installed and
tested. Instructions and explanations are required to be given to the users with regards to the
functions and features of the system, before post implementation review is conducted. This is
to ensure that the system is running according to user specifications.

7. CURRENT SYSTEM ANALYSIS AND SPECIFICATION

The revenue activities involved in the Sales Point are ‘taking’ customer orders and receiving
payments for those sales. The revenue process starts when the customer walks into the Sales
Point and orders the product. To record the proof of purchase by the customer, the Sales Point
employee has to issue a receipt. The receipt includes the customer’s (distributor’s) details,
order details and payment details. The distributor’s details include the Distributor’s Name
and Code, and the Upline’s Name and Code. The Order details which include the code of the
product, the quantity, promotional value (PV), bonus value, (BV) and dealer’s price are then
recorded manually in the receipt after the sales have transpired and eventually the customer
pays for the products. The receipt is prepared in three copies. The first is the Head Quarter’s
copy (pink colour), the second is a duplicated receipt for the customer’s copy (blue colour)
and the third is a duplicated copy (yellow colour) which is to be filed in the Sales Point.

At the end of the day, a Daily Sales Report is prepared which totals up the sales of the day.
Then, at the end of every week, the Sales Point Manager prepares a Sales Summary Report
manually before submitting it to the Distributor Centre along with the first copy (Head
Quarter’s copy) of the receipts to replenish the goods that have been purchased by the
customers. The Sales Summary Report details up the receipts marked numbers, date of sales
and the distributors’ marked numbers.

A. Current System Problem

As the current system is done manually, we have identified some major problems which are
listed below:

a. Time consuming.

The main problem is that the time consumed in preparing the receipt for each customer is
quite long. As mentioned in the current system analysis, for each sales event, the Sales Point
employee has to write down the distributor’s particulars, order details and the payment
details. The distributor details are the Distributor’s Name and Code, the Upline’s Name and
Code. The order details include the product’s code, quantity, Promotional Value (PV), Bonus
value (BV) and dealer’s price.
54 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

The time taken is much longer if the customer has ordered more than one product as each of
the order details have to be multiplied by the quantity ordered. This problem has affected the
quality of responsiveness of their customer’s services and customer’s satisfaction.

b. Lack of information for decision making.

The problem of the inability to combine all of the data in one database has also caused the
Sales Point personnel to prepare an incomplete sales summary report for decision making
purpose. The information regarding the quantity of each product being sold to customers, the
fast moving products or the slow moving products cannot be generated for analysis. Thus, the
current system does not provide the timely information and the needed information to aid
them in making decisions.

c. Inefficiency of data storage, data updating and data searching.

The details of the products and the distributors’ details are written manually in separate
books. The Sales Point employee has to refer to the products lists to write the product code,
PV, BV and price for the specific product each time the receipts are filled in by a customer.
The problem arises in the updating of the data as there are new products introduced in the
market and some of the products details (e.g. product’s code, PV, BV or price) changes from
time to time. It is also possible for errors to occur in the current system with the possibility of
being undetected for quite some time. Thus the data storage, data updating and data querying
is inefficient.

8. SYSTEM DESIGN

The overall current system specification analysis, business processes and rules are evaluated
and translated into conceptual design as illustrated in the Figure 6. The main component is
the system generator, which is based on the REA model and a code template that generates
the files needed to build the new prototype system that utilised the database software.

Resources Events Agents

M M 1 1
Receive Distributor
M Order
Product M
1
1
M 1
Employee
M 1
M Sales M 1

M
1
M
Cash/ Check/ M
Voucher 1 M Receive
Payment
M
Figure 6: REA Model
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 55

Based on the system analysis, the product has been identified as the main resource for
receiving order event and sales event. These two operating events are initiated by the
distributor who makes the order and the events are handled by the employee who processes
the transactions. After the occurrence of the sales events, it is followed by the ‘receive
payment’ event which also involves the same agents who are the distributor and employee.
The cash/ check/ voucher received from the distributor are then identified as the resources for
the ‘receive payment’ event.

9. SYSTEM IMPLEMENTATION AND TESTING

The implementation and testing phase is the phase where all the elements and activities of the
system coalesce. The purpose is to ensure that the functional requirements of the developed
system are achieved as discussed during the system analysis phase.

The RIS prototype system has four main processes/ functions from the distributor data entry
through the cash receipts entry. These four processes include: (1) the distributor data entry,
(2) the inventory data entry, (3) the sales order data entry and (4) the cash receipts data entry.
The main functions are also supported with additional functions which include: (1) the report
preparation, (2) product replenishment, (3) system password, (4) system backup, and (5) the
system audit trail.

In the implementation and testing phase that are executed to identify whether the system
prototype improves the efficiency of business process, the researchers of this study compared
and contrasted the functions of the current manual system with the new system prototype by
the use of the real input transactions. Firstly a system demonstration was conducted to the
user and explanation was given for each of the functions and features of the system. Then, a
task-by-task comparison and contrast analysis between the manual system and the new
system prototype were executed by recording the start and stop times of completing the tasks
by considering the following functional components: (1) querying product information (e.g.
product code, PV, BV, Price), (2) querying distributor information (e.g. distributor code,
sponsor code), (3) processing sales order transaction, (4) preparing product replenishment
reports, (5) preparing daily sales summary, (5) preparing weekly sales summary and (6) the
frequency in replenishing the products.

The system testing is an ongoing process. The various components of the system are
integrated and systematically tested. The system is tested for continued performance in
accordance with user requirements, and needed system modifications are subsequently
incorporated. The operational and functional system is periodically assessed through reviews
to determine how the system can be made more efficient and effective. Operations continue
as long as the system can be effectively adapted to respond to the needs of the business.
When modifications or changes are identified as necessary, the system has to re-enter the
planning phase. This phase continues until the system is satisfied in accordance with the
defined user requirements.

Then, the prototype modifications are installed and made operational in a real world
environment. New hardware, software and processing procedures are installed and tested.
The user manual is prepared and users are given explanations with regards to the system
functions and features.
56 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

Real data are used as the testing input and reports are generated for the user’s validation.
Lastly, post implementation review is conducted and tested to ensure that the system is
running according to user specifications.

10. FINDINGS AND DISCUSSIONS

A. Findings

During the first phase of SDLC which is the system analysis, a survey was conducted to
determine the feasibility of the new proposed system. A total of 8 ‘Sales Point’ personnel
were interviewed. The finding as depicted in Table 1 shows that there is a positive indication
of the feasibility of the proposed system by the 75% positive response from the Sales Point
personnel. There is a marked indication of encouragement from the Sales Point personnel for
a shift from the current manual operations to a computerised system.

Table 1: The Feasibility of RIS

Total %
Yes 6 75.0
No 2 25.0
Total 8 100.0

The new developed system focuses on improving the efficiency in business processes,
processing customer orders, supporting timely collection of cash and providing timely
account information for decision making. In the new computerized system, all data regarding
the distributors and products are stored in one database. The new system still maintains the
same data flow and document flow used before. The operation functions and the elements
that are exhibiting significant value-added contributions to the business function are further
identified. It is essential that the REA model to be detailed out. Thus, the system flowchart,
and data flow diagram of the business functions, together with the business rules and the
business data were combined to design the overall picture of the REA model as illustrated in
Figure 6. The results of adopting the REA model and the implementation of the new
prototype are discussed below:

a. REA Model as a means of specifying and designing accounting information system.

The REA model captures only essential aspects of economic phenomena. Owing to the clear
separation of base objects from information derivation processes, we found that:

i) REA models are kept concise and easy to understand. Business information and entities
involved in the system are easily identified and categorised based on resources (R), events
(E) and agents (A), which formed the basis for REA model. Non value-added activities
that will generate excess capacity for the business operations can be eliminated from the
conceptual design. Thus, the REA model helps to develop RIS prototype system that will
permit better focus on control and efficiency on business operations.

ii) REA models can be used for many applications. All data is integrated in a way that
allows the managers and employee to access the information they need to perform the
business effectively. Each entity (resources, events and agents) in the REA model links to
each other by relationships. With the availability of the full REA model, the mapping of
the relationships in the model to the relationships in the Relational DBMS is clear cut.
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 57

iii) Derived artefacts are always consistent by means of the models. REA does not include
some traditional accounting artefacts associated with journals or ledgers, such as debit,
credit, receivables, or accounts. Instead, these elements are derived from REA model
objects. For instance, the quantity on hand for an inventory item is obtained from the
imbalance between the purchase events and the sales events for that inventory item.
Another example is accounts receivables, which is generated from other primary data that
are the sales events minus the cash collection events. Thus, the REA model is able to
capture the meaning of business events more efficiently and effectively as compared to
the double-entry bookkeeping model.

b. Improve the efficiency in business process.

All of the product ordering and cash collection from the customer is done in one
computerised system. The Sales Point employee may search for distributors and products
information using the search function in the new system. All of the information regarding the
specific distributor and product searched will then appear automatically after keying the
desired distributor code/name and product code/name. The calculation of total PV, BV and
price are also done automatically by the new system. The user has only to select the products
and input the quantity ordered by customer. This expedites the processing of customers’
orders, reduces the input and calculation errors, provides a quick response to query and
eventually increases customer satisfaction. The findings of RIS implementation are shown in
Table 2.
Table 2: Implementation of RIS Results

Task Before RIS Implementation After RIS Implementation

Querying Product
Information (e.g. Product 1 minute 21 seconds 42 seconds
code, PV, BV, Price)

Querying Distributor 25 seconds 12 seconds

Information (e.g. Distributor
code, Sponsor code)

Processing Sales Order 5 minutes 48 seconds 2 minutes 56 seconds

Transaction

Preparing Product Can only be done after closing Product replenishment

Replenishment Reports the sales for each period information are updated
automatically at each sales

Preparing Daily Sales Can only be done at the end Daily sales are updated
Summary of the day automatically for every sales

Preparing Weekly Sales Can only be done after Automatically prepared by

Summary completing daily sales system

The frequency in 6 times 4 times

replenishing the products
58 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

Table 2 depicts the differences in the results prior to the implementation of RIS and after the
implementation of RIS. The results specify the time spent in completing each task such as the
querying on product information, the distributor information, the processing of sales order
transactions and also in the preparation of reports. It shows that the time spent to process
customer’s orders has reduced to 2 minutes and 56 seconds after the implementation of RIS.

The RIS has also saved time for preparation of the needed reports as the system automatically
updates the information in the reports at each occurrence of an event transaction. The results
supported the first objective of an accounting information system in the revenue cycle
mentioned earlier, that is to support the performance of the organisation’s business activities
by an efficient data transaction process.

c. Provide timely information for decision making

The results are also in line with the third function of the accounting information system in
revenue cycle which is to provide useful information for decision making. The new
computerised system could generate various reports from the report function. This function
provides the management with timely and detailed information regarding sales such as the
daily sales report, the weekly and monthly sales summary, the products and quantity of
products being sold summary, the products lists, the distributors list and also the product
catalogues for customers’ reference. By the procurement of the sales summary, the
management can decide on the timely replenishment of the products. This helps to reduce the
frequency of time and cost spent in replenishing products (refer to Table 2).

It should be noted that the sales and cash collection events involve the decisions necessary for
the transfer of ownership of the goods and services to customers. These include the response
to customer enquiries and the determination of inventory availability. The focus of having
timely information is to support temporal concepts. Meaningful accounting information must
be specified with either a point of time or duration of time. For example, a user may ask for a
report on the previous month's sales activities. In that case, we need the past states of the
object model as well as the past rules to calculate the sales. When adding temporal
information to the system, we have to consider how to keep track of the changes in objects,
values, associations and queries.

d. Efficiency of data control, data storage, data updating and searching.

The system prototype is enhanced with system audit trail and system backup. These are to
ensure that the system provide adequate control to the business including the safeguard of
data from loss in order to support the second function of accounting information system in
revenue cycle.

The user-friendly functions and Graphical User Interface (GUI) features embedded also
contribute to the ease of using the new system. Functions such as updating existing record,
adding new record, deleting and searching a particular record solve the problems in the
inefficiency of data storage, data updating and data searching problem. All of the said tasks
can be done by the use of a single database instead of having separate books of records.
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 59

B. Discussions

Database design in business information system structured by those who are involved in the
business itself would create a meaningful system as their needs are fulfilled. The challenge is
in the effective use of IT to build information system architectures that improve the ability of
accounting to support organisations. To meet this challenge, accounting professionals need to
develop a strategic and conceptual understanding of IT resources with the ability to
understand and model business activities and processes involved.

Traditionally, accountants have been responsible for assessing the information needs of users,
defining the content and format of output reports, selecting accounting rules and determining
the controls necessary to preserve the integrity and efficiency of the information system. With
the arrival of IT era, the role of accountants became wider, as accountants now act as the
system users, system designers and system auditors. Their demands are broadening the
traditional transaction documentation and boundaries of the accounting system. However, the
part to be played by accountants became the subject of much controversy (Hall, 2004).
Lacking computer skills and not being computer savvy, accountants were generally uncertain
about their status and unwilling to explore the emerging technology.

In system design, the accounting function is responsible for the conceptual system which is to
determine the nature of the information required, its sources, its destination, and the
accounting rules that must be applied, while the computer function is responsible for the
physical system. Hence, system design should be collaboration between these two fields.
Because of the uniqueness of each system and the susceptibility of the systems to serious
error and even fraud, the accountant’s involvement in systems design should be pervasive.
Thus, the active participation of accountants is critical to the system’s success.

C. REA versus ER modelling

REA and ER model are two methods of data modelling that have a lot in common, but there
are, of course some differences and advantages. ER-diagramming is more commonly found
with traditional event-based systems while REA-modelling is used with event-oriented
systems. Event-oriented system which focuses on business events redefines the scope of
accounting. Rather than selecting only those traditional accounting events that change the
company’s assets, liabilities, or owner equity, event-driven system select those business
events that management wants to plan, control and evaluate. Of a particular note, while ER
models include operating, information, and decision and management events, REA models
include only operating events. Nevertheless, REA model can still be used as collection,
storage and maintenance of both financial and non-financial data about business events in
detail and supports a wider range of management decisions.

In addition, REA model increase productivity via elimination of non-value added activities. It
helps managers to identify non-value added activities that will generate excess capacity. Still
REA is simpler and more focused on business needs.
60 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

11. CONCLUSION, LIMITATIONS AND FUTURE RESEARCH

In this paper, the researchers have described a structured approach and process in the
planning and the implementation of a transformation project and in the conversion from the
legacy information systems to the new updated information systems. The researchers have
applied the REA model approach and process to a real world case study, that is, the
transformation project of the RIS in the sales order receipts and cash receipt systems. They
have also discussed the step-by-step use of the structured techniques of the REA in the case
study.

In conclusion, the REA model is an alternative view of an accounting information system that
could support the information needs of all users in the organization. An approach to database
design is meant to overcome problems with traditional approaches, and alternate the
traditional approach with the use of centralised relational database structure with the aims of
collecting detailed financial and non-financial data, supporting accounting and non-
accounting analysis, supporting multiple user views and enterprise-wide planning. The REA
model is built upon an organisation’s resources, events, and agents, and how these elements
are interrelated. Application of the REA model yields to a centralised and relational
database. Using REA model, the user views which are a set of data that a particular user
needs to do his or her job can be created for all users of organisational information.

The prototype of the RIS shows that organisations do need the application of database
information system to improve their competitive edge in business. Managing the revenue
information system enhances the value of organisations by improving the efficiency of
business processes, the quality, speed and responsiveness of their customer services. The
functions and features of the system which include the data entry and updates, queries and
forms provide easy and efficient mechanisms for adding, updating and searching for
information. The new system enables the production of various types of timely reports and
catalogues for user’s decision making and reference. In addition, user-friendly functions and
Graphical User Interface (GUI) features that were embedded in the system contribute to the
feasibility of success and adoption of the system.

There are several limitations that need to be considered and addressed in future research. The
RIS prototype is limited to revenue cycle scope which comprise of taking sales order and
cash collection only. This is because the researchers focus on the main business process of
the Sales Point. The RIS is also limited to the specific direct selling Sales Point as each of the
direct selling companies has their own business rules, procedures and operations, of which, to
develop such a system requires reference to the user specifications and user needs.

This paper is an attempt to use REA for the sole purpose of expressing business process
modelling. Future research should study the implementation of online revenue information
system and integrated network database. Some other important future research efforts that
augment the ideas here are:

i) to develop a system that could link all of the sales points, distributor centres and the head
quarters for a better communication and sharing of information, that fulfils one of the
accounting information system function (Hall, 2004).
ii) to have an overall system that could incorporate all accounting cycles (revenue cycle,
conversion cycle, expenditure cycle) to produce a complete and simultaneous result in the
transaction process.
JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009 61

12. REFERENCES

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 62 JOURNAL FOR THE ADVANCEMENT OF SCIENCE & ARTS, VOL. 1, NO. 1, JANUARY – JUNE 2009

Khairina Rosli is currently a lecturer at the College of Business (Accounting),

University Utara Malaysia (UUM), Kedah. She completed her Master of
Information Technology from Universiti Kebangsaan Malaysia in 2003
(2002-2003) and her Bachelor of Accountancy (Hons.) from Universiti Utara
Malaysia in 2000 (1997-2000). Her area of expertise is in Accounting
Information System with interest in Database Design, Resource-Event-Agent
(REA) Modelling, Entrepreneurship and Accounting Education. The subjects that she has
taught included Database Management Systems; Accounting Information System;
Information Technology in Accounting; Business Accounting; and Financial Accounting. She
has previously participated in the Kedah ICT Carnival and was conferred the Private Sector
Innovation Award, Kedah ICT in 2007.

Mr. Aidi is currently a lecturer at the College of Business (Accounting),

Universiti Utara Malaysia (UUM). He obtained his master degree in MSc.
Accounting Information Systems from Leeds Metropolitan University in 2001
and Bachelor Degree of Accounting from UUM in 1997. Prior to joining
UUM, he worked as an Internal Auditor with Asia Commercial Finance (M)
Bhd. He is also a member of the Malaysian Institute of Accountant (MIA) and
an associate member of the Institute of Internal Auditors Malaysia (IIAM). He commenced
his duties at UUM as a Tutor in August 1999 and was appointed as a lecturer in December
2001. He gained invaluable experiences whilst he was attached at the Airedale National
Health Services (NHS) Trust, United Kingdom in developing the database for their private
patients. Since joining UUM as a lecturer in 2001, Mr. Aidi was involved in several
accounting and information systems related consultancy projects including systems
development in Majlis Agama Islam Kedah (MAIK) and has functioned as a Webmaster for
several organisations i.e. Asian Academic Accounting Association (FourA) and Uniutama
Management Holdings Sdn. Bhd.(UMHSB). His teaching and research expertise centres on
Accounting Information System, Systems Development, Internal Auditing and e-Commerce.

Liana is currently an Accounting Lecturer attached at UCSI University

since 2007. Previously, she was a lecturer at Universiti Utara Malaysia
(UUM) for about 8 years. She graduated from Universiti Teknologi
Malaysia (UTM) in Master of Science in Information Technology and
completed her undergraduate degree programme from Universiti Utara
Malaysia (UUM) in Bachelor Degree of Accounting. Her teaching
experiences are in the areas of Accounting Information System, Financial
Accounting, and Audit. She is interested in the research area of Internal
Control of Information System.

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