The evolution of relational databases began in 1970 when an IBM analyst named E.F. Cobb invented a database concept using relational algebra in order to devise a better way of storing large amounts of data (Dr. Robert Melworm, 2003).  This is particularly relevant in business processes, specifically, accounting because relational databases eliminate the need for redundant data entries because once data is entered in a field that is part of an integrated relational database, it can be queried by anyone looking for it without having to open a new program or new database, which had been the case prior to relational databases.

The key term in database is data, and as such no matter how robust a database is, it is only as good as the data stored within.  To this end, before we discuss the benefits of the relational database, it is important to mention that the database should be carefully populated with data and the relationships between the data should constructed using the REA data model which is specifically built to provide structure for Accounting Information Systems. REA stands for Resources, Events and Agents. In an effective model, each event should be linked to the resource it affects, and the agents involved (William E. McCarthy, 2003).

Functionally, a primary benefit of implementing a relational database system, is that is provides the ability to manage data centrally, thus eliminates the need for redundant entries and the associated inconsistencies caused by human error and alike (Romney/Steinbart, 2006).  For example, without an integrated relational database, the customer service department will have an entry for each customer. Additionally, the sales department will have an entry for each customer. If the Company name changes, the name must be changed in two places; the customer service database and the sales database.  However, in an integrated relational database, the customer name will only have to be changed once, because both the customer service department and the sales department are working off the same customer file.  Not only does capturing all related information about a given customer in one place eliminate double work, this also provides easy access to all available information about a specific customer without having to login into two separate databases.

Data sharing is another benefit of the relational database as the data can be accessed by a number of people within the organization at the same time because the queries are only pulling the data from the fields without having to open the file.  Further, the data stored within the database can be accessed by a number of applications that are linked to the database. (This might take some programming if the applications are not designed to work together.)

Data integrity is critical to accounting.  To this end, using an integrated relational database that is in part designed by the accounting group, rules can be implemented that requires specific data characteristics, which will ensure consistency and help to eliminate bad data, which if not identified are used to make potentially harmful decisions (Romney/Steinbart, 2006). The relational database eliminates duplicate entries and the associated risk of inconsistencies. 

Another significant benefit to utilizing a relational database is the report generating capabilities. For example, without a relational database, it would be nearly impossible to pull a single report that would include information stored in separate databases such as (i) sales to a specific customer, (ii) the number of customer service calls, (iii) the number of returned products, (iv) the dates of the shipments, and (v) gross profit margin on products sold to the customer over a period of time. However, with a relational database all this information would be stored in one centralized area thus retrievable in one report.
Written By: The Company Pulse (analyst@thecompanypulse.com)

Works Cited

McCarthy, W. E. (2003). The REA Modeling Approach to Teaching Accounting Information Systems. Michigan State University.

Melworm, D. R. (2003). The History of Database. Union, NJ: Kean University.

Romney/Steinbart. (2006). Relational Databases. Accounting Information Systems, 10e . Prentice Hall Business Publishing.