Float Measurement On a typical day, a firm writes checks totaling $3,000. These checks clear in seven days. Simultaneously, the firm receives $1,700. The cash is available in two days on average. Calculate the disbursement, collection, and net floats. How do you interpret the answer?

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Accepted Answer

The disbursement float is 7 days × $3,000 = $21,000. The collection float is 2 days × (−$1,700) = −$3,400. The net float is $21,000 + (−3,400) = $17,600. In other words, at any given time, the firm typically has uncashed checks outstanding of $21,000. At the same time, it has uncollected receipts of $3,400. Thus the firm’s book balance is typically $17,600 less than its available balance, for a positive $17,600 net float.

Question 19.S-TP.1: Float Measurement On a typical day, a firm writes checks tot...

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