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The REA-invention of   Thank you    Double Entry       for inviting   Bookkeeping:         Bill & me Moving Accounting    ...
In the spirit of Ghent  The Ghent Altarpiece (Het Lams Gods)Let’s go back a few years to ?
In the year 1432• Gutenberg’s printing press was impending, and the advanced use of  Hindu-Arabic numbers was becoming pre...
In his Summa in 1494, Luca Pacioli codified the   Venetian method of bookkeeping which had evolved to deal with the blizza...
Luca Pacioli – “Father” of Accounting• Debit – from Italian  “debito” -- owed to the  proprietor• Credit – from Italian  “...
Accounting systems through the agesPrincipal                          Enterprise Economic Activities (Events)(reality) “ t...
Accounting systems through the agesPrincipal                          Enterprise Economic Activities (Events)(reality) “ t...
Documentation  Systematic                     and                                                                      LEG...
Fast forward to the last 50 years            (1962 – 2012)• Technological Imperatives:  – Computers, advanced tracking tec...
Accounting systems through the agesPrincipal                            Enterprise Economic Activities (Events)  “ transac...
Accounting systems through the agesPrincipal                            Enterprise Economic Activities (Events)  “ transac...
Accounting systems through the agesPrincipal                            Enterprise Economic Activities (Events)  “ transac...
What happens to moderncomputer systems when you “pave these cow-paths” ??
Accounting systems through the agesPrincipal                            Enterprise Economic Activities (Events)  “ transac...
What’s wrong with the traditional accounting system?          (why not pave the cowpaths ??)                          • It...
Accounting engineering artifacts              gone bad• Crazy code block expansions• Period costing & matching• Absorption...
FOR EXAMPLE: ACCOUNT-CODING of                 ECONOMIC PHENOMENAaccount        balanceInventory     $$$$$      account-co...
double-entry                                  accounting     Enterprise     economic    phenomena                       do...
Documentation  Systematic                                                            Temporal                     and     ...
Principal                              Enterprise Economic Activities “ transactionalmemory external to the parties of the...
going beyond the bookkeeping to  natural language descriptions
Accounting Systems EvolutionPrincipal                              Enterprise Economic Activities“ transactionalmemory ext...
Cookie-Monster (the customer) and Elmo (the entrepreneur) meet in the (real or  virtual) marketplace, thus setting the    ...
Cookie-Monster and Elmo engage in a SALE (transfer of Cookie Inventory)
Cookie-Monster and Elmo engage in a    PAYMENT (transfer of Cash)
accounts-receivable      sales  1.00          1.00             1.00         cash  1.00cost-of-goods-sold     inventory  .8...
ELMO   sold   cookie                       COOKIE-MONSTER
ELMO   received   cash                         COOKIE-MONSTER
Economic Resource                                                               Economic Agent                            ...
Economic Resource                                                               Economic Agent                            ...
Economic Resource                                                                    Economic Agent                       ...
<<Economic Agent>>                                   <<Economic Event>>            Customer                               ...
COOKIE                                                  COOKIE-stockflow-SALE Product#    Description      Price     Cost ...
COOKIES                                                   COOKIES-stockflow-SALE  Product#    Description      Price     C...
Business                     Business                                                                 Value/Supply   workf...
Cash                                           Labor                                                             Labor    ...
In philosophy and computer science, an ontology is a formalrepresentation of a set of concepts within a domain and therela...
Ontology Summit 2011               CommuniqueFundamentally, ontology is about reaching agreements on  what things mean and...
Collaboration Space Perspective: Trading Partner vs. Independent           Enterprise #1                                  ...
Collaboration Space                    Value ExchangeBuyer                                                                ...
Accounting Systems EvolutionPrincipal                              Enterprise Economic Activities“ transactionalmemory ext...
Businessworkflow               Business                        Process                       Event                        ...
Independent view of                                                                                   exchange events     ...
«EconomicResourceType»                                                    «EconomicResource»                              ...
policyOL                                                                                                             «Even...
Documentation  Systematic                                                            Temporal                     and     ...
Documentation  Systematic                                                                 Temporal                     and...
Positive REA (study what is)                 Enterprise Economic Activities                                               ...
Normative REA (beyond prototypes) Fully-implemented,   REA-directed,                       Accumulation of enterprise syst...
Hoping for the REA “golden spike” where thepositive (ecologically rational) and the normative            (rationally desig...
Where are we today in technology?
Where are will we be in 15 years?
REA monograph – proposed outline1. The original REA model      a. REAs & accounting ontology      b. the switch to an inde...
double-entry                               accounting      Enterprise      economic     phenomena                   REA-en...
The REA-invention of    Double Entry         Any   Bookkeeping:        questions Moving Accounting        ?? Back to the C...
Documentation  Systematic                                                                 Temporal                     and...
The REA-invention of Double Entry Bookkeeping - Moving Accounting Back to the Center of Enterprise Information Architectur...
The REA-invention of Double Entry Bookkeeping - Moving Accounting Back to the Center of Enterprise Information Architectur...
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The REA-invention of Double Entry Bookkeeping - Moving Accounting Back to the Center of Enterprise Information Architectures by prof. William E. McCarthy

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prof. William E. McCarthy, Professor Accounting & Information Systems at Michigan State University

The REA-invention of Double Entry Bookkeeping - Moving Accounting Back to the Center of Enterprise Information Architectures

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The REA-invention of Double Entry Bookkeeping - Moving Accounting Back to the Center of Enterprise Information Architectures by prof. William E. McCarthy

  1. 1. The REA-invention of Thank you Double Entry for inviting Bookkeeping: Bill & me Moving Accounting across Back to the Center of Enterprise Information & Architectures
  2. 2. In the spirit of Ghent The Ghent Altarpiece (Het Lams Gods)Let’s go back a few years to ?
  3. 3. In the year 1432• Gutenberg’s printing press was impending, and the advanced use of Hindu-Arabic numbers was becoming prevalent in Europe. Technological Imperative• Copernicus and Columbus had not yet been born, but it was the dawn of the Renaissance and the Age of Discovery. Increasing trade ventures were causing “a blizzard of transactions” that needed accurate and reliable documentation and stewardship. Commercial Imperative• Where was accounting (enterprise information systems) in the 1400s? – Accounting had been around in various locales for 3,000 years already in the form of tokens, clay jars, and sticks. There are even claims that accounting caused the invention of writing. – Counting artifacts preceded van Eyck by thousands of years. – In Italy, double-entry accounting had already started in the 1300s (reached Bruges soon thereafter) . – Double-entry spread faster once books were available detailing its operation. Technological Imperative
  4. 4. In his Summa in 1494, Luca Pacioli codified the Venetian method of bookkeeping which had evolved to deal with the blizzard of commercialtransactions at the dawn of the Renaissance and the Age of Exploration. Trading ventures hementions include those with the cities of Antwerp and Bruges.
  5. 5. Luca Pacioli – “Father” of Accounting• Debit – from Italian “debito” -- owed to the proprietor• Credit – from Italian “credito” – owed from the proprietor• BOOKS: – Memorandum – Journal (L) – Ledger (G)
  6. 6. Accounting systems through the agesPrincipal Enterprise Economic Activities (Events)(reality) “ transactionalmemory externalto the parties of the exchange”Surrogates notched stick (accounting system) Agrarian Age
  7. 7. Accounting systems through the agesPrincipal Enterprise Economic Activities (Events)(reality) “ transactionalmemory externalto the parties of the exchange” memorandum Journal .Surrogates notched A/ Rec …. stick (accounting Sales… system) Luca Pacioli & double-entry Ledger . accounting (1494) spread throughout Europe and ooo beyond. Engineered accounting artifacts facilitated this change and Agrarian Age Mercantile Age evolution.
  8. 8. Documentation Systematic and LEGEND Accuracy and Stewardship Reliability Commercial Imperative Path-Creation Change Path- Creation Design Path-Dependent Change Changing Business Models and Accounts, Expectations Journals (Commercial and Imperative) LedgersDouble-Entry Accounting Innovation: Narrative Creation of New descriptions and Artifacts single-entry (Technological records Imperative)Counting &Calculating Methods Path- Dependent DesignTechnological Imperative SOURCE: Recording and Hindu-Arabic Semantic Geerts & Counting Numerals and Technologies. Arithmetic Web Technologies McCarthy Advances
  9. 9. Fast forward to the last 50 years (1962 – 2012)• Technological Imperatives: – Computers, advanced tracking technologies, markup languages, database semantics, etc.• Commercial Imperatives: – Efficiency, multidimensionality, comprehensiveness, interoperability, etc.
  10. 10. Accounting systems through the agesPrincipal Enterprise Economic Activities (Events) “ transactionalmemory external to the parties of the exchange” source jar memorandum document JournalSurrogates notched A/ Rec …. . computer stick files and Sales… General Ledger Ledger . Financial ooo statements Agrarian Age Mercantile Age Industrial Age
  11. 11. Accounting systems through the agesPrincipal Enterprise Economic Activities (Events) “ transactionalmemory external to the parties of the exchange” source jar memorandum document JournalSurrogates notched A/ Rec …. . computer stick files and Sales… General Ledger Ledger . Financial ooo statements Agrarian Age Mercantile Age Industrial Age
  12. 12. Accounting systems through the agesPrincipal Enterprise Economic Activities (Events) “ transactionalmemory external to the parties of the exchange” source jar memorandum document JournalSurrogates notched A/ Rec …. . computer stick files and Sales… General Ledger Ledger . Financial ooo statements Agrarian Age Mercantile Age Industrial Age
  13. 13. What happens to moderncomputer systems when you “pave these cow-paths” ??
  14. 14. Accounting systems through the agesPrincipal Enterprise Economic Activities (Events) “ transactionalmemory external to the parties of the exchange” source jar memorandum documentSurrogates notched stick Journal A/ Rec …. Sales… Ledger ooo . . X computer files and General Ledger Financial statements Agrarian Age Mercantile Age Industrial Age
  15. 15. What’s wrong with the traditional accounting system? (why not pave the cowpaths ??) • Its dimensions are limited (need multidimensional focus) Source • Its classification schemes (CoA) document are not always appropriate (need more semantic focus on modeling of reality) • Its aggregation level is too high and predetermined (determined by M/Files and closing, adjusting, and costing general ledger procedures) • Its degree of integration with other systems is limited (need links with Financial types, commitments, and other data Statements from supply chain, production, marketing, human resources, etc.)
  16. 16. Accounting engineering artifacts gone bad• Crazy code block expansions• Period costing & matching• Absorption costing• Activity-based accounting (G/L centered)• LIFO, SoYD• Grundrechnung ?
  17. 17. FOR EXAMPLE: ACCOUNT-CODING of ECONOMIC PHENOMENAaccount balanceInventory $$$$$ account-code balance InventoryInventory Color $$$$$ Type account-code balance Inventory Distribution Sales-Inventory Type Size Color --- person Customer $$$$$ Channel
  18. 18. double-entry accounting Enterprise economic phenomena double entry sludgesee Vandenbosscheeter and Wortmann (REA Workshop 2006)
  19. 19. Documentation Systematic Temporal and and LEGEND Accuracy and Multidimensionality Stewardship Efficiency Granular Independent Automated Reliability and Integration Comprehensiveness Interoperability Reasoning Commercial Imperative Path-Creation Change Path- Creation Design Path-Dependent Change Changing Business Models and Accounts, Transaction Expectations Journals Activity- and Master (Commercial and Based Files (GL) Imperative) Ledgers CostingDouble-Entry Accounting Facet- XBRL Coded GL Accounts Innovation: Narrative Creation of New descriptions and Artifacts Digital (Technological single-entry Single Imperative) recordsCounting & EntryCalculating Methods Path- Dependent DesignTechnological Imperative SOURCE: Recording and Hindu-Arabic Computers Advanced Markup Database Semantic Geerts & Counting Numerals and Tracking Languages Technologies Technologies. Arithmetic Technologies Web Technologies McCarthy Advances
  20. 20. Principal Enterprise Economic Activities “ transactionalmemory external to the parties of the exchange” source jar memorandum document Journal computerSurrogates notched A/ Rec …. . stick files and Sales… General Ledger Ledger . Financial ooo statements Agrarian Age Mercantile Age Industrial Age
  21. 21. going beyond the bookkeeping to natural language descriptions
  22. 22. Accounting Systems EvolutionPrincipal Enterprise Economic Activities“ transactionalmemory externalto the parties of Economic storytelling the exchange” with semantic models of value creation by firms source jar memorandum document JournalSurrogates notched A/ Rec …. . computer stick files and Sales… General Financial Other Ledger Reporting Views of View Enterprise Event-chains Ledger . Financial ooo statements Agrarian Age Mercantile Age Industrial Age Enterprise Systems Age
  23. 23. Cookie-Monster (the customer) and Elmo (the entrepreneur) meet in the (real or virtual) marketplace, thus setting the stage for an Economic Exchange
  24. 24. Cookie-Monster and Elmo engage in a SALE (transfer of Cookie Inventory)
  25. 25. Cookie-Monster and Elmo engage in a PAYMENT (transfer of Cash)
  26. 26. accounts-receivable sales 1.00 1.00 1.00 cash 1.00cost-of-goods-sold inventory .80 .80
  27. 27. ELMO sold cookie COOKIE-MONSTER
  28. 28. ELMO received cash COOKIE-MONSTER
  29. 29. Economic Resource Economic Agent insideParticipate Economic Event stock-flow Economic Agent outsideParticipate
  30. 30. Economic Resource Economic Agent insideParticipate Economic Event stock-flow Economic Agent outsideParticipate
  31. 31. Economic Resource Economic Agent insideParticipate Economic Event stock-flow Economic Agent outsideParticipate duality Economic Agent insideParticipate Economic Event stock-flow Economic Agent outsideParticipateEconomic Resource Modeling requited transactions with REA patterns
  32. 32. <<Economic Agent>> <<Economic Event>> Customer Sale 1..1 customerNumber invoiceNumber customerName outsideParticipate numberOfLineItems discountPerCent 1..1 0..* saleAmount 1..* receivableBalance discountedAmount Stockflow costOfGoodsSold lineItemQuantity updateReceivableBalance() lineItemPrice calculateNumberOfLineItems() calculateSaleAmount() calculateDiscountedAmount() 0..* calculateCostOfGoodsSold() 1..1WholesaleCustomer RetailCustomer statusCategoryCode <<Economic Resource>> mainWarehouseCity statusCategoryName Cookies productNumber tellAboutSelf() tellAboutSelf() description currentUnitPrice unitCost calculateUnitCost()
  33. 33. COOKIE COOKIE-stockflow-SALE Product# Description Price Cost Product# Invoice# Quantity P-1 Chocolate 1.05 .90 P-2 I-1 5 Chip P-3 I-1 10 P-2 Chocolate 1.00 .80 P-2 I-2 20 P-3 Peanut .95 .78 P-4 I-3 9 Butter P-1 I-3 1 P-4 Pecan 1.10 .94 P-2 I-4 1 SALE-duality-CASH_RECEIPT SALE Sale Invoice Payment AmountInvoice# Amount Date Cost Seller# Buyer# # Timestamp Applied I-1 14.75 1JUL 11.80 E-1234 C-987 I-1 2JUL0830 14.75 I-2 20.00 2JUL 16.00 E-1234 C-888 I-2 3JUL0800 2.00 I-3 10.95 3JUL 9.36 E-1234 C-999 I-2 5JUL0800 18.00 I-4 1.00 5JUL .80 E-1234 C-987 I-3 8JUL1145 6.00 I-4 8JUL1200 1.00 An accounting database
  34. 34. COOKIES COOKIES-stockflow-SALE Product# Description Price Cost Product# Invoice# Quantity P-1 Chocolate 1.05 .90 P-2 I-1 10 Chip P-3 I-1 5 P-2 Chocolate 1.00 .80 P-2 I-2 20 P-4 I-3 9 Peanut Butter P-1 I-3 1 P-3 .95 .78 P-2 I-4 1 P-4 Pecan 1.10 .94 SALE-duality-PAYMENT SALE Sale Invoice Payment Amount Invoice# Amount Date Cost Seller# Buyer# # Timestamp Applied I-1 14.75 1JUL 11.80 E-1234 C-987 I-1 2JUL0830 14.75 I-2 20.00 2JUL 16.00 E-1234 C-888 I-2 3JUL0800 2.00 I-3 10.95 3JUL 9.36 E-1234 C-999 I-2 5JUL0800 18.00 I-4 1.00 5JUL .80 E-1234 C-987 I-3 8JUL1145 6.00 I-4 8JUL1200 1.00Story of why this invoice amount to $14.75 ??
  35. 35. Business Business Value/Supply workflow Process Event Chain Phases networked Economic Economic Business Resource Agreement governs Process Type specifies bundles specifies Economic Economic typify reciprocal Commitment specifies Agent Type Economic policy Event Type fulfills policy typify typify from-participate Economic Economic stock-flow Economic Resource Event Agent to-participate dualityAdding temporal and granular expansion, process phases, and business events to REA
  36. 36. Cash Labor Labor Payroll Cash Labor Maintained Car Process Labor Maintenance Revenue Car Labor Process Process Labor Cash Cash Acquisition Process Car Revenue Rental Customer Agent Labor Rental CarMaintained Car Contract Exchange Cash Cash Receipt Cash Customer Cashier Accept Customer Contact Find Car & Provide Keys Assess Customer Needs Check Out Car Check Car File & Choose Assess Insurance Options & Credit Return Car Fill in Contract Update Files Customer Pays REA – 3-level architecture 38
  37. 37. In philosophy and computer science, an ontology is a formalrepresentation of a set of concepts within a domain and therelationships between those concepts. It is used to reason about theproperties of that domain, and may be used to define the domain(Wikipedia). Resource policy Type policy trigger specify specify typifiy Agent Type participate Economic Commitment reciprocal specify Event Type policy fulfill typifycomponent typify Economic Economic responsibility stockflow fromParticipation Economic Resource Event Agent toParticipation dualityResource Event Agent
  38. 38. Ontology Summit 2011 CommuniqueFundamentally, ontology is about reaching agreements on what things mean and putting it in machine-processible form. In an enterprise, this represents a radically different way to express meaning. The usual way is for meaning to be scattered throughout the organization in people’s heads, in email, in no-longer maintained requirements documents, in conceptual models, etc. … Ontology both forces and enables an organization to be clear about what things mean and in doing so, gets everyone on the same page. Equally important, formally representing meaning enables automated inference which helps to reduce unnecessary complexity, improve reliability and increase agility.
  39. 39. Collaboration Space Perspective: Trading Partner vs. Independent Enterprise #1 Independent view of Inter-enterprise events Business Process Enterprise #2 Business Process Business Process Business Enterprise #3 Process Business Process Business Process Business Trading Partner view of Process Inter-enterprise events Business (upstream vendors and Process downstream customers) BusinessDotted arrows represent flow of goods, services, and cash between Processdifferent companies; solid arrows represent flows within companies SOURCE: Adapted from ISO/IEC 15944, 2007
  40. 40. Collaboration Space Value ExchangeBuyer Seller Third Party Japan expert contribution to 15944-4, 9 May 2002, Seoul Korea
  41. 41. Accounting Systems EvolutionPrincipal Enterprise Economic Activities“ transactionalmemory externalto the parties of Economic storytelling Economic storytelling the exchange” of interoperable with semantic models of value creation by firms communities of firms source jar memorandum document JournalSurrogates notched A/ Rec …. . computer Collaboration stick files and Sales… Financial Other Space General Ledger Reporting Views of View Enterprise Event-chains Ledger . Financial ooo statements Agrarian Age Mercantile Age Industrial Age Enterprise Systems Semantic Web Age Age
  42. 42. Businessworkflow Business Process Event Phases Economic Economic Business Resource Agreement governs Process aggregate Type typify establish specifies specifies Economic Economic Commitment specifies Agent Type reciprocal Economic Event Type typify fulfills typify Economic stock-flow Economic from Economic Resource Event Agent to settles duality materializes Economic Claim
  43. 43. Independent view of exchange events REA ontology Trading Partner view of exchanges Trading Partner view of conversions REA enterprise ontology1. Planning—Identification-Negotiation- (Coase) 1. Planning—Negotiation-Actualization- Actualization-Post-actualization phases Post-actualization phases2. inside/outside participate 2. inside only participate3. inflow/outflow stockFlow 3. use--produce stockFlow4. 1-to-1, 1-to-n, n-to1, m-to-n duality 4. n-to-1 dualities5. other 5. other
  44. 44. «EconomicResourceType» «EconomicResource» «EconomicEvent» «EconomicResource» SupplyItemCategory stockFlow Payment 1..1 typify 0..* SupplyItem 0..* 0..* 1..1 Cash - supplyItemCategoryName PK - quantityOfItemOnThisTicket - remittanceAdvceNum PK - cashAccountNumber PK - supplyItemTypeNumber PK - monthlySaleAmountOfSIC - supplyItemPrice receive - $AmountOfRemitAdvice stockflow - cashAccountBalance - supplyItemQOH- - clientCheckNumber 0..* 0..1 «EconomicAgent» 0..* BookingAgent provide - employeeNumber PK 0..* - bookingAgentCommRate 0..1 0..* 0..* «BusinessLocation» «EconomicAgent» policy Location 1..1 duality 0..* Client - locationName PK - clientNumber PK - locationMapCoords CK site provide 0..* 0..* 1..* - clientName 0..* 0..* 0..* 0..* 0..* start finish «EconomicEvent» «EconomicEvent» 1..1 Expedition ExpeditionTicket «EventType» 1..1 0..* receive distance ExpeditionType policy-sequence - expeditionNumber PK PK - ticketNumber PK 0..* - distanceBetween - slotsFilledForScheduleExped - expeditionTypeName PK - sequenceOfLocationOnTour - discountedSlotCharge - actualDuration - expedExpectedTimeLength meronymic - total$AmountOfSupplyItems - scheduledExpeditionDate - standardUndiscountedSlotFee - countOfSlotsOnThisTicket - expeditionTypeCapacity typify 0..* 1..1 0..* 0..* 0..* 0..* 0..* policy participate 0..* 1..* stockflow policy-count lead participate «EconomicResourceType» AircraftType - countOfEmployeeType 0..* 0..* 1..1 participate 0..* 0..*- aircraftTypeName PK 0..*- aircraftSeatingCapacity- aircraftFuelCapacity «EconomicAgent» «EconomicAgent» «EconomicAgent» 0..* Pilot Guide ExpeditionWorker 0..* - employeeNumber PK - employeeNumber PK - employeeNumber PK - dateOfInitialPilotLicense - dateQualifiedAsAGuide «EconomicResource» 0..* Aircraft 1..* group 0..* policy- qualifies group {incomplete, disjoint} - aircraftEngineNumber PK «EconomicAgentType» - hoursFlown 0..1 0..1 - dateAircraftManufactured «EconomicAgentGroup» EmployeeType - aircraftName CK People - «EconomicAgent» - employeeType PK - peopleName PK Employee - startingWageForEmpType - countOfEmployeesForType - approximatePopulation - employeeNumber PK 0..1 - employeeName 0..*1..1 typify typify 0..* Typed REA model for exchange business process
  45. 45. policyOL «EventType» -laborMinutesPerUnit «AgentType» policyTM 1..1 typify Operation Type Employee Type 0..* -minutesNeededPerUnit 0..* 0..* 1..* -employeeTypeName PK -operationTypeName PK -standardSequence -startingWage 0..* policyBM 1..* «EconomicResourceType» 0..* Tool-Machine Type 1..1 «EconomicResourceType» 1..1 -toolMachineTypeDescription PK Medical Equipment Type -quantityOwned policyBM -medicalEquipmentCatalogNumber PK typify 1..1 -standardUnitCost quantityOfRawMaterialPerUnit 1..* -standardGramWeight1..1 0..* typify specify -qOH 1..* specify1 0..* 1..1 1..* -scheduledMinutes 1..1 1..1 0..*0..* 0..* specify specify «EconomicResourceType» specify Raw Material Type 0..* -scheduledMinutes 0..* 1..* -rawMaterialCatalogNumber PK -standardUnitCost 0..* «EconomicCommitment» «EconomicCommitment» -qOH Scheduled Manufacturing Operation reciprocal Scheduled Manufacturing Run typify - scheduledOperationNumber PK - productionOrderNumber PK 1..1 - scheduledSequence - budgetedTotalLaborCost typify specify 1..* 1..1 - budgetedTotalMaterialCost -scheduledQuantity - budgetedTotalTool&MachineCost «EconomicResource» - projectedQuantityProduced Tool-Machine 1..* 1..1 0..*-toolMachineNumber PK used-dateAcquired - quantityUsed fulfill 1..1 0..* 0..*-totalMinUsedSinceAcquis fulfill 1..* 0..1 participate 0..1 «EconomicResource» used 0..* Medical Equipment «EconomicEvent» «EconomicEvent» - minutesUsed 1..* Manufacturing Operation Manufacturing Run -medicalEquipTagNumber PK - manufacturingRunNumber PK 0..1 -actualGramWeight 0..* - initiationTimestamp PK duality - actualTotalT&MCost produce «EconomicResource» - actualDuration - toDateRunLaborCost Raw Material 0..1 0..* 1..1 - toDateRunMaterialCost consume - actualSequence -rawMaterialTagNumber PK 1..* - actualQuantityProduced -dateAcquired conversion 0..* participate -minutes 0..* 0..* business process participate participate 0..* 0..* participate participate -minutes -minutes «EconomicAgent» 0..1 Employee 1..* 0..1 1..* 0..* -employeeNumber PK -employeeName «EconomicAgent» «EconomicAgent» «EconomicAgent» «EconomicAgent» «EconomicAgent» Scheduler Supervisor -wage Machinist Assembler Electrician -dateHired -employeeNumber PK -employeeNumber PK -employeeNumber PK -employeeNumber PK -employeeNumber PK {complete, disjoint}
  46. 46. Documentation Systematic Temporal and and LEGEND Accuracy and Multidimensionality Stewardship Efficiency Granular Independent Automated Reliability and Integration Comprehensiveness Interoperability Reasoning Commercial Imperative Path-Creation Change Path- Creation Design Path-Dependent Change Changing Business Models and Accounts, Transaction Expectations Journals Activity- and Master (Commercial and Based Files (GL) Imperative) Ledgers CostingDouble-Entry Accounting Facet- XBRL Coded GL Accounts Innovation: Narrative Creation of New descriptions and Artifacts Digital (Technological single-entry Single Imperative) recordsCounting & EntryCalculating Methods Path- Dependent DesignTechnological Imperative SOURCE: Recording and Hindu-Arabic Computers Advanced Markup Database Semantic Geerts & Counting Numerals and Tracking Languages Technologies Technologies. Arithmetic Technologies Web Technologies McCarthy Advances
  47. 47. Documentation Systematic Temporal and and LEGEND Accuracy and Multidimensionality Stewardship Efficiency Granular Independent Automated Reliability and Integration Comprehensiveness Interoperability Reasoning Commercial Imperative Path-Creation Change Path- Creation Design Integrated Value Chain, Path-Dependent Business Change REA REA Process, and Accounting Enterprise WorkFlow Enterprise Model Ontology Descriptions Value Chain Changing Business Integrated Models and Accounts, Transaction Repository with Expectations Journals Activity- and Master Minimal General (Commercial and Based Files (GL) Ledger Imperative) Ledgers CostingDouble-Entry Accounting Facet- XBRL Coded GL Accounts Innovation: Narrative Creation of New descriptions and Artifacts Digital (Technological single-entry Single Imperative) recordsCounting & EntryCalculating Methods Path- Dependent DesignTechnological Imperative SOURCE: Recording and Hindu-Arabic Computers Advanced Markup Database Semantic Geerts & Counting Numerals and Tracking Languages Technologies Technologies. Arithmetic Technologies Web Technologies McCarthy Advances
  48. 48. Positive REA (study what is) Enterprise Economic Activities Economic storytelling Economic storytelling with semantic models of of interoperable value creation by firms communities of firms source jar memorandum document notched Journal . computer stick A/Rec …. files and Sales… General Financial Other Ledger Reporting Views of View Enterprise Event-chains Ledger . Financial statements oooAgrarian Age Mercantile Age Industrial Age Enterprise Semantic Web Systems Age Age
  49. 49. Normative REA (beyond prototypes) Fully-implemented, REA-directed, Accumulation of enterprise system engineering expertise & implementation experience Standards work with ebXML, UN-CEFACT (UMM module)and ISO Open-edi (accounting & economic ontology)
  50. 50. Hoping for the REA “golden spike” where thepositive (ecologically rational) and the normative (rationally designed) meet
  51. 51. Where are we today in technology?
  52. 52. Where are will we be in 15 years?
  53. 53. REA monograph – proposed outline1. The original REA model a. REAs & accounting ontology b. the switch to an independent view2. Granular expansions a. Up to Value Chains and Value Systems (supply chains) and down to workflow (state machine) b. Fit to Theory of the Firm (Coase) – same pattern i. Exchanges ii. Conversions c. The economic component structures of resources (Lancaster) and agents (need to identify an economic source)3. Temporal expansions a. What could be or should be (types, standards, budgets) b. What is planned or scheduled (commitments and contracts) c. Business Process phases – Tie workflow to state changes and business events4. Needed expansions a. Claims – tied to Financial Instrument Business Ontology b. Materialization of account balances c. Internal controls – Tie to scripts for integrity constraints5. Future directions and open issues a. Evaluative (positive) i. Behavioral ii. Railway spike (where normative and positive meet in actual practice) b. Design (normative) c. Tie to other accounting work – XBRL-FR and IMA managerial roadmap
  54. 54. double-entry accounting Enterprise economic phenomena REA-engineered accounting systemsAn Expanded Vision for Accounting
  55. 55. The REA-invention of Double Entry Any Bookkeeping: questions Moving Accounting ?? Back to the Center of Enterprise Information Architectures
  56. 56. Documentation Systematic Temporal and and LEGEND Accuracy and Multidimensionality Stewardship Efficiency Granular Independent Automated Reliability and Integration Comprehensiveness Interoperability Reasoning Commercial Imperative Path-Creation Change Path- Creation Design Integrated Value Chain, Path-Dependent Business Change REA REA Process, and Accounting Enterprise WorkFlow Enterprise Model Ontology Descriptions Value Chain Changing Business Integrated Models and Accounts, Transaction Repository with Expectations Activity- Journals and Master Minimal General (Commercial Based and Files (GL) Ledger Imperative) CostingDouble-Entry Ledgers Accounting Facet- XBRL Coded GL Accounts Innovation: Narrative Creation of New descriptions and Artifacts Digital (Technological single-entry Single Imperative) recordsCounting & EntryCalculating Methods Path- Dependent DesignTechnological Imperative SOURCE: Recording and Hindu-Arabic Computers Advanced Markup Database Semantic Geerts & Counting Numerals and Tracking Languages Technologies Technologies. Arithmetic Technologies Web Technologies McCarthy Advances

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