Question

Midwest Supply has deposited $2,000 in checks received from customers. It as written $1,400 in checks to its suppliers. The initial balance was $400. If $1,600 of its customers checks have been cleared but only $600 of its own, calculate its float.

A. $400

B. $300

C. $700

D. $200

Answer 1

Float, by definition, is amount in banking system that is counted twice for a brief period due to delays in processing checks. Float is created when the bank credits account of customer when customer deposits the check but it takes some time for the check to be received from the payer’s bank.

Assume the initial balance mentioned is both book balance and bank balance.

Initial Book Balance = Initial Bank Balance = $400

Bank Balance = $400 + $1600 - $600 = $1400

Book Balance = $400 + $2,000 - $1,400 = $1000

Float = Available Bank Balance - Book Balance = $1400 - $1000 = $400