Financial Accounting for Undergraduates, 4e

by Wallace, Nelson, Christensen

| ISBN: 978-1-61853-308-1 | Copyright 2020

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Welcome to the Fourth 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 Fourth Edition has benefited from extensive feedback from adopters of the first three 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. 

  • Road Map: Each chapter opens with a grid that identifies each learning objective for the chapter, the related pages, eLecture and Guided Example videos, and end of chapter assignments. This allows students and faculty to quickly grasp the chapter contents and to efficiently navigate to the desired topic.
  • The Past/Present/Future feature provides students with an overview of where the chapter fits within the whole course.
  • Chapter Organization Chart: Each chapter's opener also includes 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 Callouts

A.K.A margin callouts 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.

Data Analytics

A discussion of data analytics is included to expose students to its relevance in accounting.


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 addition, the financial statements for LVMH Moet Hennessey-Louis Vuitton S.A. (a Paris-Based holding company) are included in Appendix C at the end of the book. Each chapter includes an IFRS assignment related to LVMH. The IFRS icon identifies those assignments.

Thinking Globally

These boxes emphasize the similarities and differences in business practices between companies in the U.S. and companies in other countries.

  • Road Map: Each chapter opens with a grid that identifies each learning objective for the chapter, the related pages, eLecture and Guided Example videos, and end of chapter assignments. This allows students and faculty to quickly grasp the chapter contents and to efficiently navigate to the desired topic.
  • Updated revenue recognition coverage for standard change
  • Updated inventory chapter (Chapter 6) for new standard on lower of cost or net realizable value
  • Added coverage on natural resources and depletion in Chapter 9
  • Updated lease appendix for standard change in Chapter 10
  • Updated Appendix D on Investments to reflect the new standard
  • Data Analytics: Added a discussion of data analytics to expose students to its relevance in accounting.
  • Updated real financial data throughout the text and assignments
  • Expanded the number of guided example videos and assignments included in MBC

      myBusinessCourse: A web-based learning and assessment program intended to complement your textbook and classroom instruction. This easy-to-use course management system grades homework automatically and provides students with eLecture and Guided Example videos to assist them in mastering the material.  In addition, detailed diagnostic tools assess class and individual performance. myBusinessCourse is ideal for online courses or traditional face-to-face courses for which you want to offer students more resources to succeed. MBC integrates with Canvas, BlackBoard, D2L, Sakai, and other LMS platforms.

       Solutions Manual: Created by the authors, the Solutions Manual contains complete solutions to all the assignment material in the text.

       Test Bank/Computerized Test Bank: The test bank includes multiple-choice items, matching questions, short-essay questions, and problems. The computerized version of the test bank enables an instructor to add and edit questions; create up to 99 versions of each test; attach graphic files to questions; import and export AsCii files; and select questions based on type or learning objective.  It provides password protection for saved tests and question databases and is able to run on a network.

       PowerPoint: The PowerPoint slides outline key elements of each chapter.

      Excel Templates:  We provide Excel spreadsheets for assignments.  These spreadsheets will save time in data entry and allow students to dedicate additional time to learning the material.  The Excel spreadsheets are identified by the EXCEL icon.

       Self-Study Quizzes: Available for students within MBC.

       Jeopardy-style review game created by the authors. Available for each chapter along with an instructional video on how to play and how to add material.

Chapter 01: Financial Accounting and Business Decisions

Chapter 02: Processing Accounting Information

Chapter 03: Accrual Basis of Accounting

Chapter 04: Understanding Financial Statements

Chapter 05: Accounting for Merchandising Operations

Chapter 06: Accounting for Inventory

Chapter 07: Internal Control and Cash

Chapter 08: Accounting for Receivables

Chapter 09: Accounting for Plant and Intangible Assets

Chapter 10: Accounting for Liabilities

Chapter 11: Stockholders' Equity

Chapter 12: Statement of Cash Flows

Chapter 13: Analysis and Interpretation of Financial Statements

Appendix A: Financial Statements and Notes for Columbia Sportswear Company

Appendix B: Financial Statements of Under Armour

Appendix C: Financial Statements for Louis Vuitton-Moet Hennessy (LVMH)

Appendix D: Accounting for Investments and Consolidated Financial Statements

Appendix E: Accounting and the Time Value of Money

Appendix F: Data Analytics and Blockchain Technology

Introducing myBusinessCourse

myBusinessCourse is a complete, secure, web-based training and e-Learning solution. There is nothing to download or install; it is accessible through any modern web browser and most mobile devices.

Request a One-on-One Demo

eLecture Videos

eLecture Videos

  • Created by the authors of the textbook
  • Consistent with the textbook's explanations and approach
  • Cover learning objectives and concepts from each chapter
  • Ideal for remediation
  • Ideal for online and hybrid classrooms

Narrated demonstration videos

Guided Example Videos

  • Created by the authors of the textbook
  • Provide problem solving strategies as well as solutions
  • Offer clear, step-by-step demonstrations of how to solve select problems from the textbook

Auto-graded assignments

Auto-graded Assignments

  • Provides immediate feedback
  • Create assignments using problems from the textbook
  • Additional randomized versions of assignments provide extra practice
  • Ideal for remediation
  • Include select questions from test banks

Detailed Reporting Tools

Detailed Reporting Tools

  • Quickly review the performance of individual students
  • Quickly review the performance of entire class
  • Use reports on student performance to customize your lectures to fit student needs

Enhanced eBook

  • Save money
  • Includes myBusinessCourse
  • Integrates eLecture and demonstration videos
  • Bookmarking
  • Note taking
  • Highlighting

Third Party Integrations

Third Party Integrations

  • Single sign-on
  • Link to assignments in myBusinessCourse from your third party course
  • Automatically sync gradebooks each night


  • Study, learn and master key terms.
  • With linear-mode, get full control over the deck. Go back and forth between cards, shuffle and auto-play the deck.
  • With certainty-mode, test how well you know each term. If you are not certain you have learned the term, it will display again later in the deck.

Support and Training

Support and Training

  • Technical support for students and faculty available daily
  • Faculty training conducted daily
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

M.J. Neeley Professor of Accounting at TCU. Former 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 Rice University, 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 currently teaches intermediate accounting to undergraduates and financial accounting to MBAs. 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.

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