Question

On a typical day, a company writes 68 checks worth a total of $9,485 that clear in 2.75 days. The company also collects 80 checks worth a total of $10,940 that clear in 2.25 days. Is this a collection or disbursement float? What is the amount of the float? Multiple Choice A collection float of $1,626 A collection float of $1,469 A collection float of $1,455 A disbursement float of $1,455 A disbursement float of $1,469

Answer 1

Definition of Float is the difference between book cash and bank cash,which represents the net effect of checks in the process of clearing.

A Collection float refers a deposition of check into a bank account that has not yet been cleared

In the case given the Company collects 80 checks worth a total of $10940 that clear in 2.25 days.

So Collection float =(10940×2.25)=$24615

A Disbursement float refers to a situation when a Company writes a check which usually takes a few days ,after deposition, for the payment to get cleared.

In the case given the Company writes 68 checks worth a total of $9485 that clear in 2.75 days.

So Disbursement float=(9485×2.75)=$26084(rounded off)

Now it is clearly visible that disbursement float is more than the Collection float by $(26084-24615)= $ 1469.

Answer is A Disbursement float of $ 1469.