Question

Float is the difference between the cash balance on the bank’s books and the firm’s books due to timing. In the past, the difference typically reflected the use of checks as a source of payment. Give an example of an electronic means of payment and its impact on float. Minimum 200 words

Answer 1

An electronic payment refers to online transfer in any means like RTGS, NEFT, IMPS etc.,. As electronic payments increase, float reduces because float typically reflects the amount which has to be reduced in near future due to requirement of funds by any person from the bank. As these electronic payments increase, the time of money transfer will reduce drastically and this will definitely reduce the availability of cash balance

For example a person deposits cheque worth 20 crore in the bank on 31/03/19, it will take definitely atleast 2-3 days to clear the cheque and funds will reflect in the account after 2 days i.e., on april 2nd 2019. On the other hand, if person uses online mode of transfer, then funds will be transferred on 31st itself and bank closing balance on 31st march will also be reduced