Interpret the components of a cash-flow statement to describe the liquidity of an organization.
Student Success Criteria
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Scenario
You presently work for Ford Motor Company in the Accounting and Reporting department. As part of the annual requirements of a publicly traded company, an external auditing firm just completed the required audit of Ford’s financial statements. The auditing firm determined the internal control procedures Ford developed were sufficient but noted Ford Motor Company could have benefited from more detailed written procedures in preparing the statement of cash flows. You have been assigned the task of analyzing procedures for developing the statement of cash flows.
In analyzing procedures for developing the statement of cash flows, you have been asked to explain the purpose of a cash flow statement and how beneficial it is for the company. The Operational Procedure should include the following sections:
Purpose – Cash Flow statement and the benefits
Introduction – Cash Flow Statement and explanation of cash generated from operations versus other activities and why this is important to evaluate liquidity for Ford Motors.
Scope – Components of the cash flow statement
Procedures
Procedures for Operating Section – Cash Flow Statement
Procedures for Financing Section – Cash Flow Statement
Procedures for Investing Section – Cash Flow Statement
Procedures for Non-Cash items
Instructions
Write an operational procedure to explain the process staff should follow to develop the different sections of the statement of cash flows using the indirect method.
In the procedures:
Define the components of the operating section of the statement of cash flows and which accounts an employee should evaluate to develop this section.
Define the components of the financing section of the statement of cash flows and which accounts an employee should evaluate to develop this section.
Define the components of the investing section of the statement of cash flows and which accounts an employee should evaluate to develop this section.
Explain what non-cash items must be disclosed in the statement of cash flows.
Analyze the 2018 Statement of Cash Flows and explain the relationship among cash generated from operations, other cash-generating activities, and liquidity.