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18 CHAPTER 1 BUSINESS PROCESSES, DATA MODELING, AND INFORMATION SYSTEMS

information. Each request is assigned to a manager who will then check for availability and respond
to the customer.
Expenditure Cycle: Velvet Lounge purchases alcohol and other beverages from several vendors.
The vendors provide different products or only one product for the club. Once Velvet Lounge has
ordered from a vendor, the vendor remains 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 dif-
ferent 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 is 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 is 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 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.
1.5 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 expe-
rienced 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 property owners 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, Worifree keeps track
of only one of the owners. Worifree performs rent collection, maintenance, and advertising, and pre-
pares contracts on behalf of the property owners for leasing transactions. Maintenance and advertis-
ing 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 different bank accounts with the same bank. In addition, because
the company has so few employees, many transactions are handled online via electronic funds trans-
fers. For example, Worifree agrees to electronically forward the rental income to corresponding