Chapter 18, Problem 1CQ

To determine

Identify the correct option for the given statement.

Answer to Problem 1CQ

Option “d”

Explanation of Solution

REA Diagram: REA (Resources, events, agents) diagram is a technique used to establish the relationship between resource, events and agents. This diagram is used to understand accounting transactions occurring in the business entity.

Modelling of business cycle makes it easier to identify the all relevant resources, events and agents for each business cycle. The relationship between the entities is prepared when the resources, events and agents are identified. At the same time, it is easier to assign the relationships in REA diagrams for a single business cycle, because it directly represents the business policies of organization. Hence, all type of entities (resources, events, and agents) are separated in different table for easy identification.

From the above explanation it is clear that “option a, b and c” are incorrect options and option “d” is a correct answer.