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NOTE 2. SUMMARY OF ACCOUNTING POLICIES
Automotive sales consist primarily of revenue generated from the sale of vehicles. Sales are recorded when the risks
and rewards of ownership are transferred to our customers (generally dealers and distributors). For the majority of our
sales, this occurs when products are shipped from our manufacturing facilities. When vehicles are shipped to customers
or modifiers on consignment, revenue is recognized when the vehicle is sold to the ultimate customer. We also sell
vehicles to daily rental car companies subject to guaranteed repurchase options. These vehicles are accounted for as
operating leases. At the time of transfer, the proceeds are recorded as deferred revenue in Accrued liabilities and
deferred revenue. The difference between the proceeds and the guaranteed repurchase amount is recognized in
Automotive sales over the term of the lease, using a straight-line method. Also at the time of transfer, the cost of the
vehicles is recorded as an operating lease in Other current assets. The difference between the cost of the vehicle and the
estimated auction value is depreciated in Automotive cost of sales over the term of the lease. At December 31, 2007
and 2006, included in Accrued liabilities and deferred revenue was $3.2 billion and $3.6 billion, respectively, and included
in Other current assets was $2.9 billion and $3.2 billion, respectively, for these vehicles.
Income generated from cash and cash equivalents, investments in marketable securities, loaned securities and other
miscellaneous receivables is reported in Automotive interest income and other non-operating income/(expense), net.
Revenue Recognition — Financial Services Sector
Revenue from finance receivables (including direct financing leases) is recognized using the interest method. Certain
origination costs on receivables are deferred and amortized, using the interest method, over the term of the related
receivable as a reduction in financing revenue. Rental revenue on operating leases is recognized on a straight-line basis
over the term of the lease. Initial direct costs related to leases are deferred and amortized on a straight-line basis over the
term of the lease. The accrual of rental payments on operating leases and interest on receivables is discontinued at the
time a receivable is determined to be uncollectible.
Income generated from cash and cash equivalents, investments in marketable securities, and other miscellaneous
receivables is reported in Financial Services revenues.
Marketing Incentives and Interest Supplements
Marketing incentives, including customer and dealer cash payments and costs for special financing and leasing
programs paid to the Financial Services sector, are recognized by the Automotive sector as revenue reductions. These
revenue reductions are accrued at the later of the date the related vehicle sales to the dealers are recorded or the date the
incentive program is both approved and communicated. We generally estimate these accruals using marketing incentives
that are approved as of the balance sheet date and are expected to be effective at the beginning of the subsequent period.
The Financial Services sector identifies payments for special financing and leasing programs as interest supplements or
other support costs and recognizes them consistent with the earnings process of the underlying receivable or operating
lease.
Supplier Price Adjustments
We frequently negotiate price adjustments with our suppliers throughout a production cycle, even after receiving
production material. These price adjustments relate to changes in design specifications or to other commercial terms
such as economics, productivity, and competitive pricing. We recognize price adjustments when we reach final
agreement with our suppliers. In general, we avoid direct price changes in consideration of future business; however,
when these occur, our policy is to defer the financial statement impact of any such price change given explicitly in
consideration of future business where guaranteed volumes are specified.
Raw Material Arrangements
We negotiate prices for and facilitate the purchase of raw materials on behalf of our suppliers. These raw material
arrangements, which take place independently of any purchase orders being issued to our suppliers, are negotiated at
arms length and do not involve volume guarantees to either party. When we pass the risks and rewards of ownership to
our suppliers, including inventory risk, market price risk, and credit risk for the raw material, we record both the cost of the
Notes to the Financial Statements
62 Ford Motor Company | 2007 Annual Report