Financial Accounting for Undergraduates, 3e

by Wallace, Nelson, Christensen, Ferris

ISBN: 978-1-61853-161-2 | Copyright 2017

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Welcome to the Third Edition of Financial Accounting for Undergraduates.

We wrote this book to satisfy the needs of students taking their first financial accounting course by providing a high quality, contemporary, and engaging textbook at an affordable price. Financial Accounting for Undergraduates is written for students who want to understand how financial statements are prepared and how the information in published financial reports is used. The Third Edition has benefited from extensive feedback from adopters of the first two editions and suggestions from focus groups, market surveys, manuscript reviews, and interviews with faculty from across the country.

Target Audience

Financial Accounting for Undergraduates is intended for use in the first financial accounting course at the undergraduate level; one that balances the preparation of financial statements with their interpretation and use. This book teaches students how to read, analyze, and interpret financial accounting data to make informed business decisions.

We believe students become more engaged in the course when they see how the content pertains to their everyday lives. Once engaged in the course, students perform much better and enjoy the class more. Furthermore, we believe accounting is a discipline best learned by doing. Unlike some other disciplines, accounting needs to be practiced. Consequently, we took great care to incorporate a number of pedagogical devices and real examples that show students the relevance of financial accounting to their lives and that help students succeed in the course.


"Why do I need to study financial accounting?"

Students frequently ask this or similar questions. The extent to which they feel accounting is relevant to their daily lives will often determine how much effort they put into the course. The following feature are used throughout the book to convey the relevance of accounting to their lives and society.

Real Data and Examples

Today's students must be skilled in using real financial statements to make business decisions. Through their exposure to various financial statements, students will learn that, while financial statements do not all look the same, they can readily understand and interpret them to make business decisions. In each chapter, we incorporate a wide range of examples using real companies that students know. In addition, the Extending Your Knowledge section in the assignments of each chapter requires students to use the financial statements of Columbia Sportswear Company and Under Armour Corporation.

Accounting in Practice

These boxed inserts help bridge the gap between the classroom and what students encounter in the world. Accounting In Practice illustrations document situations a reader is likely to encounter and present the choices that companies make in reporting financial results.

Accounting in Everyday Life

Accounting in Everyday Life boxes illustrate how accounting is used and is useful day-to-day situations. By demonstrating the relevance of accounting to students, we hope to further engage students and spur their interest in succeeding in the course.

Corporate Social Responsibility

Increasingly, companies have found that “doing good leads to a more successful, profitable enterprise. These boxed inserts help students understand how corporate social responsibility is being embraced by forward-thinking enterprises as part of their long-term business models.


Financial accounting can be challenging—especially for students lacking business experience or previous exposure to business courses. To help students succeed in the course, we provide a wealth of resources through our online learning and homework systems, myBusinessCourse (MBC), and through pedagogical devices used throughout the textbook

Putting each chapter in context

Often, students lose sight of the big picture. The Past/Present/Future feature provides students with an overview of where the chapter fits within the whole course.

Mapping each chapter

Each chapter begins with an overview that visually depicts the layout of the chapter

Your Turn!

Your Turn boxes are integrated throughout each chapter as a mends of reinforcing the material just presented. Solutions are provided at the end of the chapter so students can check their work.

A.K.A Boxes

A.K.A (Also Know As) boxes inform students of commonly used alternative terms that they may encounter.


Helpful suggestions are inserted in the margin as Hints to help students understand difficult concepts. To record the bad debts expense for the period. This entry brings the credit balance in the Allowance for Doubtful Accounts account to the required amount—$1,560, as shown below


These in-chapter summaries ensure that students grasp key concepts before proceeding to the next topic.


In today’s post-Sarbanes-Oxley world, ethical decision making has never been more pertinent to business and students studying accounting. We discuss ethics where appropriate in the text, and we have included at least one assignment in each chapter that raises an ethical issue. Assignments involving ethics are identified by the icon in the margin.

International Financial Reporting Standards (IFRS)

Our introductory students should develop a basic understanding of the similarities and differences in the current reporting requirements and methods under U.S. GAAP and IFRS. Consequently, we incorporate discussions that examine these similarities and differences where appropriate throughout the book in IFRS Alert! boxes. In addition, the financial statements for Tesco, PLC are included in Appendix C at the end of the book. Each chapter includes an IFRS assignment related to Tesco. The IFRS icon identifies those assignments.

Thinking Globally

In addition to IFRS Alert! boxes, the Thinking Globally inserts emphasize the similarities and differences between the United States and other countries that are not necessarily related to reporting standards

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Expand/Collapse All
Chapter 01: Financial Accounting and Business Decisions (pg. 2)
Chapter 02: Processing Accounting Information (pg. 58)
Chapter 03: Accrual Basis of Accounting (pg. 120)
Chapter 04: Understanding Financial Statements (pg. 188)
Chapter 05: Accounting for Merchandising Operations (pg. 232)
Chapter 06: Accounting for Inventory (pg. 274)
Chapter 07: Internal Control and Cash (pg. 330)
Chapter 08: Accounting for Receivables (pg. 380)
Chapter 09: Accounting for Long-Lived and Intangible Assets (pg. 424)
Chapter 10: Accounting for Liabilites (pg. 468)
Chapter 11: Stockholders' Equity (pg. 528)
Chapter 12: Statement of Cash Flows (pg. 576)
Chapter 13: Analysis and Interpretation of Financial Statements (pg. 628)
Appendix A: Columbia Sportswear Company (pg. A-1)
Appendix B: Financial Statements of Under Armour (pg. B-1)
Appendix C: Financial Statements for LVMH Moet Hennessy - Louis Vuitton (pg. C-1)
Appendix D: Accounting for Investments and Consolidated Financial Statements (pg. D-1)
Appendix E: Accounting and the Time Value of Money (pg. E-1)
James S. Wallace

James S. Wallace

Associate Professor at The Peter F. Drucker and Masatoshi Ito Graduate School of Management at The Claremont Graduate University.

He received his Bachelors of Arts from the University of California, Santa Barbara, his MBA from the University of California, Davis, and his PhD from the University of Washington. Professor Wallace also holds a CPA certification from the state of California. He previously served on the faculty of the University of California, Irvine and has served as a visiting professor at the University of California, San Diego. Professor Wallace's work has appeared in leading academic journals including the Journal of Accounting and Economics, the Journal of Corporate Finance, and Information Systems Research, along with leading applied journals such as the Journal of Applied Corporate Finance, the Journal of Accountancy, Issues in Accounting Education and Accounting Horizons. Prior to his career in academics, Professor Wallace worked in public accounting and in industry with a Fortune 500 company. He has done consulting work with numerous companies in multiple industries.

Karen K. Nelson

Karen K. Nelson

Harmon Whittington Professor of Accounting and past Accounting Area Coordinator at the Jones Graduate School of Business at Rice University.

Karen previously served on the faculty at the Stanford University Graduate School of Business and as a visiting professor at the University of Michigan. She earned her Ph.D. at the University of Michigan and a bachelor’s degree (summa cum laude) from the University of Colorado. She also holds a CPA license from the state of Colorado. Professor Nelson’s research focuses on financial reporting and disclosure issues, including the role of regulators, auditors, and private securities litigation in monitoring financial reporting quality. She has held research seminars at over 50 leading business schools in the U.S. and abroad, and published in a variety of leading academic journals including The Accounting Review, Journal of Accounting and Economics, Journal of Accounting, and Review of Accounting Studies. Her research has been featured in the financial press in publications such as The Wall Street Journal, Business Week, and Forbes. She is an active member of the American Accounting Association and serves on the Editorial Board of The Accounting Review. She has taught financial accounting at all levels, and her students have honored her with numerous awards for teaching excellence. She is a member of the Standing Advisory Group of the Public Company Accounting Oversight Board.

Theodore E. Christensen

Theodore E. Christensen

Director and Terry Distinguished Chair of Business in the J.M. Tull School of Accounting at the University of Georgia (UGA).

Prior to coming to UGA, he was on the faculty at Brigham Young University from 2000-2015 and at Case Western Reserve University from 1995-2000. He was a visiting professor at the University of Michigan (2013-2014) and the University of Utah (2012) and has taught at Santa Clara University in a summer program since 2005. He received a B.S. degree in accounting from San Jose State University, an M.Acc. degree in tax from Brigham Young University, and a Ph.D. in accounting from the University of Georgia. Professor Christensen has authored and coauthored articles published in many journals, including The Accounting Review; the Journal of Accounting and Economics; the Journal of Accounting Research; Review of Accounting Studies; Contemporary Accounting Research; Accounting Organizations and Society; the Journal of Business Finance & Accounting; the Journal of Accounting, Auditing, and Finance; Accounting Horizons; and Issues in Accounting Education.

Kenneth R. Ferris

Kenneth R. Ferris

Professor in the W.P. Carey School of Business at Arizona State University where he teaches the undergraduate, introductory financial accounting course.

He received a B.B.A. and an M.B.A. from The George Washington University and an M.A. and a Ph.D. from The Ohio State University. He previously served on the faculties of Northwestern University, The Claremont Graduate University, Southern Methodist University, and Thunderbird School of Global Management, and he has taught at numerous academic institutions in Australia, Hong Kong, Japan, and New Zealand. Professor Ferris is the author or co-author of eleven books, over fifty academic and professional publications, and over eighty case studies. He previously served as a director of several NYSE listed companies and is active in executive education programs around the world.

Last Updated: Apr 12 2017
Errata for 1st and 2nd printing.
Excel Templates - STUDENT Chs 01-04
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Excel Templates are provided for select assignments. (Chs 1-4)
Excel Templates - STUDENT Chs 05-08
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Excel Templates are provided for select assignments. (Chs 5-8)
Excel Templates - STUDENT Chs 09-13
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Excel Templates are provided for select assignments. (Ch 9-13)
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Self-Study Quizzes
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Breif practice quiz questions for each chapter of the text.

Self-Study Quiz Solutions
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Solutions to breif practice quiz questions for each chapter of the text.

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