Ford 2010 Annual Report Download - page 88

Notes to the Financial Statements
86 Ford Motor Company | 2010 Annual Report
NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
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, over the term of the related receivable as a reduction to
revenue. Revenue from rental payments received 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 over the term of the lease as a reduction to
revenue. The accrual of interest on receivables and revenue on operating leases is discontinued at the time an account is
determined to be uncollectible, at bankruptcy status notification, or greater than 120 days past due.
Income generated from cash and cash equivalents, investments in marketable securities, and other miscellaneous
receivables is reported in Financial Services other income/(loss), net.
Retail and Lease Incentives
We offer special retail and lease incentives to dealers' customers who choose to finance or lease Ford-brand vehicles
from Ford Credit. The estimated cost for these incentives is recorded as a revenue reduction to Automotive sales when
the vehicle is sold to the dealer. In order to compensate Ford Credit for the lower interest or lease rates offered to the
retail customer, we pay the discounted value of the incentive directly to Ford Credit when it originates the retail finance or
lease contract with the dealer's customer. The Financial Services sector recognizes income for the special financing and
leasing programs consistent with the earnings process of the underlying receivable or operating lease.
Sales and Marketing Incentives
Sales and marketing incentives generally are recognized by the Automotive sector as revenue reductions in Automotive
sales. The incentives take the form of customer and/or dealer cash payments. The reduction to revenue is accrued at the
later of the date the related vehicle is sold or the date the incentive program is both approved and communicated. We
generally estimate these accruals using incentive programs that are approved as of the balance sheet date and are
expected to be effective at the beginning of the subsequent period.
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 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. 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 raw material
and the income from the subsequent sale to the supplier in Automotive cost of sales.