Chapter 1

Business Processes, Data Modeling and Information Systems

Multiple-Choice Questions
1.1 D
1.2 D
1.3 B
1.4 C
1.5 B
1.6 C
1.7 C
1.8 C
1.9 C
1.10 C
1.11 E
1.12 E

Problems

1.1 Cherokee Art and Antique Store

Develop an REA diagram for Cherokee Art and Antique Store’s expenditure cycle to model
its purchasing and payment events related to artists/sellers given the following new fact that
Jesse likes to collect information on potential artists/sellers for future business. Other
situations remain the same.

(0,N)
Inside
Jesse
participation
(1,1) (1,N)
(1,1)
Inventory Inflow Purchase

(1,1)
(0,N)
Outside (0,N)
participation
Duality Artist/Seller

Outside (0,N)
(1,N) participation
(1,1)
Cash Cash
Outflow
(Bank Account) Disbursement (1,1)
(1,N) (1,1)
Inside
participation
(0,N)

1.2 Cherokee Art and Antique Store

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 Develop an REA diagram for Cherokee Art and Antique Store’s acquisition activities to
model its expenditures related to the purchasing of store furniture, office equipment and other
fixed assets only. Assume that Jesse always makes installment payments for asset
acquisition. He writes a check for the payment of each asset even if several assets have been
purchased from the same vendor, since this way is easier for him to track the unpaid balance
of each item. Occasionally, a vendor does not require a down payment.

(0,N)
Inside
Jesse
participation
(1,N) (1,N)
Fixed (1,1)
Inflow Acquisition
Asset

(1,1)
(0,N)
Outside (1,N)
participation
Duality Vendor

Outside (1,N)
(0,1) participation
(0,1)
Cash Cash
Outflow
(Bank Account) Disbursement (1,1)
(1,N) (1,1)
Inside
participation
(0,N)

(1,N) Fixed Asset – Acquisition –

Reflects the fact that there must be a fixed asset associated with an acquisition event (1);
Instances of fixed assets are logically types rather than tokens; therefore, the
maximum cardinality for the resource is N
(1,N) Acquisition – Fixed Asset –
Reflects the fact that there must be an acquisition event associated with obtaining a fixed
asset (1);
And many items may be purchased with each acquisition
(1,1) Acquisition – Jesse –
Each acquisition must have Jesse involved; therefore, the minimum is 1 (acquisitions cannot
exist without Jesse)
Each acquisition can have no more than Jesse involved; Jesse is the only employee;
therefore, the maximum is 1
(0,N) Jesse – Acquisition –
Jesse does not have to be related to acquisitions to be in the database; therefore, the minimum
is 0
Jesse can related to many acquisitions; therefore, the maximum is N
(1,1) Acquisition – Vendor –
Each acquisition must have a Vendor involved; therefore, the minimum is 1
Each acquisition is related to only one Vendor; therefore, the maximum is 1
(1,N) Vendor – Acquisition –
The minimum is 1 because Jesse does not enter any vendors into the database that he does
not do business with; if he did so, the minimum would be 0

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 The maximum is N because he can and does make more than one acquisition from the same
vendor
(0,N) Acquisition – Cash Disbursement –
Acquisitions can be made without a down payment; therefore, the minimum is 0
Acquisitions can relate to multiple cash disbursements; therefore, the maximum is N
(0,1) Cash Disbursement – Acquisition –
Cash Disbursements are made for items other than Acquisitions; therefore, the minimum is 0
Cash Disbursements cannot relate to multiple acquisitions; therefore, the maximum is 1
(1,N) Cash – Cash Disbursement – note that this can also be (0,N) for the following reason –
Although the bank account cannot exist without a cash receipt, it can exist without making
any cash disbursements; therefore, the minimum is 0
The bank account obviously relates to many cash disbursements; therefore, the maximum is
N
(1,1) Cash Disbursement – Cash –
Each Cash Disbursement (check) is drawn from one bank account; therefore, the minimum
and maximum cardinalities are 1
(0,1) Cash Disbursement – Vendor –
Cash Disbursements can be made to artists as well as to vendors; therefore, the minimum is 0
Since it is unlikely the more than one Vendor’s name would appear on a cash disbursement,
the maximum is 1
(1,N) Vendor – Acquisition –
Jesse will not enter vendors in the system unless he is doing business with them; therefore,
the minimum is 1
Each vendor can be involved in many acquisition transactions; therefore, the maximum is N
(1,1) Cash Disbursement – Jesse –
Cash Disbursement can’t exist without Jesse; therefore, the minimum is 1
Jesse is the only person that can make a cash disbursement; even if he wasn’t, he would want
only one person accountable for each cash disbursement; therefore, the maximum is 1
(0,N) Jesse – Cash Disbursement –
Jesse exists in the database regardless of the cash disbursements; therefore, the minimum is 0
Jesse participates in many cash disbursements; therefore, the maximum is N
(0,1) Cash Disbursement –Vendor –
Cash Disbursements are made to external agents other than vendors; they are also made to
artists; therefore, the minimum is 0
Maximum of 1 is reasonable because we not be writing one check to more than one vendor
(1,N) Vendor – Cash Disbursement –
The minimum is 1 because Jesse does not enter any vendors into the database that he does
not do business with; if he did so, the minimum would be 0
The maximum is N because we can and do make more than one cash disbursement to the
vendors

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1.3 Cherokee Art and Antique Store
Develop an REA diagram for Cherokee Art and Antique Store’s expenditure cycle to model
its purchasing and payment events in general (not to include the acquisition event in problem
1.2). That is, other than buying art pieces and paying the artists, Cherokee also buys office
supplies, orders services for maintenance, pays for other operating expenses such as for water
and utility, telephone, and cleaning. Please modify your REA model created for problem 1.2.

(0,N)
Inside
Jesse
participation
(1,1) (0,N)
(1,1)
Inventory Inflow Purchase
(0,1)
Outside (0,N)
(0,1) participation
(0,N)
(1,N) (0,N) Outside (0,N)
Service participation
Inflow
Duality Artist/Seller Vendors

Outside (0,N)
(1,N) participation
(0,1) (0,1) Outside
(0,N)
participation
Cash Cash
Outflow
(Bank Account) Disbursement (1,1)
(1,N) (1,1) Inside
participation
(0,N)

(0,N) Vendor – Purchase –

The minimum is 0 if Jesse includes potential vendor info in the table or he enters vendor info
into the database before the purchase transaction occurs. If he enters vendor info after the
transaction occurs, the minimum would be 1
The maximum is N because we can and do make more than one purchase from each vendor

(0,N) Vendor – Cash Disbursement –

The minimum is 0 if Jesse includes potential vendor info in the table or he enters vendor info
into the database before the transaction occurs. If he enters vendor info after the transaction
occurs, the minimum would be 1
The maximum is N because we can and do make more than one cash disbursement to each
vendor

1.4 Carlsbad Surfboards Store

Carlsbad Surfboards Store sells handcrafted surfboards to customers through its network of
company salespeople. Each surfboard is given a unique identification number and a suggested
selling price when finished.

Upon employment each salesperson is immediately assigned to service a separate group of

customers. When customer data is initially entered into the information system, the customer is
immediately assigned to a salesperson. Each sale can include one or more surfboards and can be
paid for in any of three ways: (1) immediately in cash (full payments only), (2) on the 15th of

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the following month (full payments only), or (3) over the course of six months (installments).
No more than one salesperson participates in making a particular sale.

Every cash receipt is processed by exactly one of Carlsbad’s several cashiers and is deposited
into one of Carlsbad’s bank accounts. Information about surfboards, employees, and customers
often needs to be entered into the database before any transactions involving them have occurred.

Required: Create an REA model for the revenue cycle of Carlsbad Surfboards Store as described.

(0,N)
Inside
participation Salesperson
(0,1) (1,N)
Surfboard (1,1)
Outflow Sale
Inventory
(1,N)
(1,1)
(0,N) Inflow

Outside (0,N) (1,1)

participation
Duality
Customer
Outside (0,N)
(0,N) participation
(0,1)
Cash
Inflow Cash Receipt
(Bank Account) (1,1)
(1,N) (1,1)
Inside
participation Cashier
(0,N)

(0,1) Surfboard Inventory – Sale –

Reflects the fact that each handcrafted surfboards is unique and can be sold once only. The
minimum cardinality of 0 means an inventory item that is in the database is not sold yet.

(1,N) Sale – Surfboard Inventory –

Each sale can include one or more surfboards.

(0,N) Sale – Cash Receipt –

Each sale may not have any cash receipt yet (0) or can have more than one cash receipts.

(0,N) Cash Receipt – Sale –

Each cash receipt may not related to a sales transaction (0; such as interest income) or can be
from one or more sales transactions.

(1,1) Cash Receipt – Cash –

Each cash receipt is deposited into one of Carlsbad’s bank accounts.

(1,N) Cash – Cash Receipt –

Each bank account can have at least one deposit and at most many deposits.

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(1,N) Salesperson – Customer –
Reflects the fact that upon employment each salesperson is immediately assigned to service a
group of customers.

(1,1) Customer – Salesperson –

Reflects the fact that each customer is immediately assigned to a salesperson, when customer
data is initially entered into the information system.

The cardinalities between events and agents are in general (1,1) to (0,N). That is, each event is
limited to one internal and one external participants (1,1), and each participants can
participate in many events and the information about the participants are entered into the
database before any transactions have occurred (0,N). The only exception is that each cash
receipt may not need one customer to participate if the cash receipt is from other source (such
as interest income).

1.5 Velvet Lounge

Background:

Velvet Lounge is a premier upscale nightclub located in the heart of San Francisco. It has
two levels which are fully stocked with two bars on each level. Velvet Lounge is richly
decorated with velvet furniture, mahogany walls, and giant chandeliers to create a very
luxurious lounge.

Velvet Lounge may be entirely rented for hosting an event at a nightclub. Most of the time,
the club is rented out for people to host a theme party or an after-party for concerts or other
special events. People who tend to rent the entire club are mostly promoters or radio stations.
Admission fees are to be determined by the hose of the event and all of the admission fees go
to the host. This gives the promoters an incentive to bring in a large crowd.

Velvet Lounge has private VIP rooms which may be rented for birthday parties and special
occasions on a smaller scale. Depending on the size of the room that is rented the customer
will be given a certain number of VIP guest passes.

Internet Use:

Velvet Lounge's official website will enable customers to see upcoming events at the club.
The website is used to provide background information about the club to the public. General
information such as location and management contact information is posted on the site.
Pictures of the club are also posted on the site.

Velvet Lounge's website allows customers to subscribe to its mailing list to be notified of
special events. This allows Velvet Lounge to keep in tough with its customer base. The
mailing list will also be a great tool for targeted promotions.

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Detailed information about VIP room rentals is available from the website. Customer may
submit a request to reserve a VIP room or the entire club through the internet with their
contact information. Each request will be assigned to a manager who will then check for
availability and respond to the customer.

Expenditure Cycle:

Velvet Lounge purchases alcohol and other beverage from several vendors. The vendors
provide different products or only one product for the club. Once Velvet Lounge ordered
from a vendor, the vendor would remain in the database even if the club has not made any
recent purchases from the vendor. A purchase can consist of multiple beverage items or it
can include only one kind of beverage. All purchase orders must be made by the purchasing
manager. Depending on the payment terms with specific vendors, Velvet’s payments may be
due in full upon delivery or payments may be due within 30 days of receipt of goods. Either
way only one check is issued per purchase order because payments are always made in full.
Only the cashier is authorized to handle cash disbursements and cash receipts. Velvet
Lounge uses a single checking account for cash disbursements and cash receipts. All
inventories are stored on-site in the stock room of the club.

Revenue Cycle:

Velvet Lounge has two sources of income: room rentals and bar service. A customer can
rent the entire club or the VIP rooms. Velvet Lounge does not distinguish between the two
different customer bases. All rental reservations are initiated by the request of a customer in
person or via the telephone, fax, or the internet. Once a reservation request has been received
it will be directed to a manager for approval. The manager assigned to the specific
reservation request will check the company database for availability and respond to the
customer accordingly. If the room is available, the manager will provide a quote for the
customer. When the customer confirms reservation of the room(s), all the necessary contact
information of the customer will be entered into the database. Payment in full for the rental
is due upon confirmation of the reservation. That is, Velvet Lounge receives one payment
for every rental reservation.

Velvet Lounge also serves drinks from its bars. Velvet Lounge has full control of all the bars
and retains all of its proceeds. Only staff employees will take drink orders and serve the
drinks. Velvet Lounge employees serve at the bar and the VIP rooms. Similarly, all orders
must be paid for in full at the time of purchase. Again, cashiers are the only employees who
handle all the cash receipts from room rentals and drinks purchases.

Required:
1. Construct an REA diagram to depict Velvet Lounge’s revenue cycle.
2. Construct an REA diagram to depict Velvet Lounge’s expenditure cycle.

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 Velvet Lounge's Revenue Cycle

Inquiry- (1,N) Customer (0,1) inside (0,N) Employee

room Inquiry participation (Receptionist)
(0,N) (1,1) Outside
(0,1)
participation

(0,N)
Rooms Lead to

(1,1)

(0,N)
(1,N) Rental (1,1) inside (0,N) Employee
Rent-room Service participation (Manager)
(1,1)
(1,1) Outside
participation
Duality (0,N)

VIP/
Outside
Customer
(0,1) (0,1) participation (0,N)

Cash (1,N) (1,1) Cash

Inflow
(Bank Accounts) Receipt (1,1)
Employee
inside (0,N)
(0,N) participation (Cashier)

Duality
Outside (0,N)
(1,1) participation Customer
(1,1)

(0,N) (1,N) Bar (1,1) Inside (0,N) Employee

Inventory Outflow Participation
Service (Bar tenders)

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 Velvet Lounge's Expenditure Cycle
(1,N)
Vendor-
inventory

(1,N) (1,N) (1,1) inside (1,N) Purchasing

Inventory Line-item Purchase participation Manager

(1,1)
(0,1)

Outside
participation

(1,N)
Duality (1,N)
Vendor

(1,N)
Outside
participation

(0,1)* (0,1)*
Cash
(Bank Cash Inside
Outflow Participation Cashier
Account) (0,N) (1,1) Disbursement
(1,1) (1,N)

*(0,1) Cash Disbursement – Purchase:

Velvet may cut checks for other expenditures such as utility or tax expenses, etc.
*(0,1) Cash Disbursement – Vendor
If Velvet pays for utility and other expenses, the participant may not be a vendor.

1.6 Worifree Properties Inc.

Background:

Worifree Properties is a small start-up company that came into existence in the spring of
2005 with a total of six employees. Headquartered in San Jose, California, the company has
experienced moderate growth in its first year. Its core business focuses on property
management. Worifree performs all property management-related tasks to satisfy the needs
of its clients. Its clients are real estate investors/owners who are interested in renting out
their property without incurring the work and worry associated with its management.
Worifree attempts to reduce owner involvement in the management process as much as
possible while providing them with accurate and reliable services and accounting.
Worifree’s clients own one or more properties in the Bay area. Although a property may
have more than one owner, most multiple owners are married couples. In those cases,

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Worifree keeps track of only one of the owners. Worifree performs rent collection,
maintenance, and advertising, and prepares contracts on behalf of the real estate owners for
leasing transactions. Maintenance and advertising services are all outsourced to contractors,
while lease handling and other services are managed by internal employees. All cash inflows
and outflows are controlled through one bank account, although Worifree has a couple of
accounts with Bank of America. In addition, because the company has so few employees,
many transactions are handled online via electronic funds transfers. For example, Worifree
agrees to electronically forward the rental income to corresponding owners immediately
upon receiving them from the tenant(s). All tenants are required to make rental payments to
Worifree using electronic funds transfers.

Revenue Cycle:

Worifree’s revenue is from one source only  real estate owners. A revenue transaction is
recorded strictly for services performed by Worifree’s employees or its contractors on one
property. Contractor services include those for maintenance and advertising on clients’
properties. The contractors invoice Worifree for services performed on a particular occasion
that may include one or more services. Once the contractors are paid, Worifree, in turn,
invoice the property owners with a service invoice for the expenditures. Worifree invoices
its clients for the same amount as the contractors invoice Worifree.
Included in Worifree’s service invoice is a monthly property management fee and charges for
other services performed by its employees, such as new rental lease arrangements and
maintenance expenditures. An invoice involves only one employee, but an employee can
handle more than one invoice. Service invoices are prepared for each client every month and
the client is required to pay in full for each bill. On rare occasions, some clients may not pay
on time and Worifree accepts late payments with financial charges. Worifree maintains only
current clients’ information in its database. The cash collections are done through electronic
funds transfer; thus no employee is involved in the cash collection process.

Expenditure Cycle:

The expenditure cycle of Worifree is not complex. There are two kinds of expenditures: (1)
services provided by contractors and (2) supplies/fixed assets purchases from vendors.
Maintenance and advertising services are provided by a specified set of vendors for quality
and cost control. Since Worifree always gets services from contractors with whom they have
had transactions before, there could be a delay to get the desired service when certain
contractors are busy. Some contractors provide more than one kind of service for Worifree.
When each service is completed and Worifree is billed, Worifree always pays the contractor
electronically in full.
When making purchases, Worifree uses a specified set of qualified vendors. Some vendors in
the vendor list are alternate vendors. Worifree orders from the alternate vendors, only if the
often-used vendor does not have a specific item in stock. All purchases are made by
purchasing agents. Each purchase involves only one purchasing agent and one vendor.
Vendors may provide Worifree one or more than one type of product on more than one
occasion. Payments for most purchases are made in full. Some vendors bill Worifree

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monthly, particularly for office supplies. However, when purchasing expensive office
equipment or large furniture, Worifree makes installment payments. Since Worifree has an
excellent credit history, some vendors do not require a down payment for installment
purchases.

Required:
1. Construct an REA diagram to depict Worifree’s revenue cycle.
2. Construct an REA diagram to depict Worifree’s expenditure cycle.

Worifree’s Revenue Cycle

Inside (0,N)
participation Employees
(0,N) (1,N)
Services (1,1)
Labor Outflow Performed
(1,1) (0,N)
Inside
(0,1) participation Contractors
(1,1)

Duality
Outside
participation (0,N) Real Estate
Owners
(1,1)
(0,N)
(1,1) Outside
Cash Cash participation
Inflow
(Bank Account) Receipt
(1,N) (1,1) (1,N) EFT

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Worifree’s Expenditure Cycle

(1,N) Purchase Inside

Supplies/ (1,N) (1,1) (0,N)
Inflow Supplies/ participation Employees
Fixed Assets
Fixed Assets
(1,1)
(0,N)
Outside
(0,N)
participation Vendors
Duality

(0,N) (0,1)

Cash (0,N) Inside

(1,1) Cash (1,1) (1,N)
(Bank Outflow participation EFT
Disbursement
Account)
(1,1)
(0,1)

Duality Outside
(1,N)
participation Contractors

(1,1)
(1,1)

(1,N) (1,N) Purchase (1,1) Inside (0,N)

Services Inflow
Services participation

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Extra Practice:
Brown’s Gallery sells original paintings by local artists. Mr. Brown often keeps about 20 pieces
in display. All sales occur in the store. Sometimes customers purchase more than one painting.
Individual customers must pay for purchases in full at the time of sale. They can use cash,
checks, or their credit cards for payments. However, corporate customers, such as hotels, may
pay in installments if they purchase more than 10 paintings. Sometimes, corporate customers
may negotiate with Mr. Brown so they will not pay any down payment. Mr. Brown hires one
marketing staff to explore potential corporate customers and always keeps tracks of these
potential customers. Although Brown’s Gallery has several bank accounts, all sales monies are
deposited into the main checking account. Mr. Brown has loyal employees and the turnover rate
has been extremely low for the past 10 years.
Required:
Draw an REA diagram for the gallery’s revenue cycle. Be sure to include cardinalities.

Inside (1,N)
participation
(0,1) (1,N) (1,1)
Inventory Outflow Sales

(1,1)
(0,N)
Outside
(0,N)
participation
Sales-Cash
Customers
collections

Outside (0,N)
participation
(1,N)*
(1,1)
Cash Inflow Cash
(Bank Account) (0,N) (1,1) Collections (1,1)
Inside
Employee
participation
(1,N)

*(1,N) – assume a hotel may make two or more purchases and pay in installments, and later,
combine the payments of different purchases into one check. Otherwise, the cardinality
should be (1,1).

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