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Financial Reporting Problem, Part 2

Building upon the financial analysis conducted on Ford Motor Company in Part 1, this essay will be focused on more complex topics regarding the company’s financial statements. Generally Accepted Accounting Principles provide specific guidelines for the organization of current assets on the balance sheet. The most important rule is for current assets to follow a sequence that is based on overall liquidity. In other words, cash should be placed at the top of the list and less liquid assets should be placed at the bottom. This provides the users of financial statements with an organized way to determine how liquid certain current assets may be. This GAAP requirement will also require the preparers of financial statements make an assessment of the liquidity of assets on the books.

In the case of Ford Motor Company, current assets are listed in the following order: cash and equivalents, marketable securities, accounts receivable, inventories, and deferred income taxes. In my assessment, this would be the correct order for current assets. The most liquid item of cash is appropriately listed at the top. Next, marketable securities can be easily converted into cash by selling them on the open market. The third category of accounts receivable is less liquid, but it can be reasonably expected that cash will be received from customers in a short amount of time. The next item listed is inventories, which must be sold to customers before it can be converted into cash. Attempting to cover the entire inventory into cash immediately would be impossible for most companies. Lastly, a deferred income tax is an asset, but it cannot be converted into cash into any market system, thus making it an appropriate choice for the last spot.

Total Current Liabilities

Current liabilities can be defined as the obligations a company must repay within one year or less. The most prominent accounts that fall under this category are accounts payable,...