Question

Each business day, on average, a firm writes checks totaling $17000 to pay its suppliers. The usual clearing time for the checks is 4 days. Meanwhile, the firm is receiving payments from its customers each day, in the forms of checks, totaling $22000. The cash from the payments is available to the firm after two days. What is the firm’s disbursement float, collection float, and net float?

Answer 1

The disbursement float is $ 68,000, collection float is -$44,000 and net float is $24,000.

Step-by-step explanation:

DISBURSEMENT FLOAT -

Formula that can be used to calculate the disbursement float is =

Amount of average monthly check written X Average number of days it

takes to clear check

Where, amount of average monthly check = $17,000

and average number of days for it to be cleared = 4 days

Disbursement float = $17,000 x 4

= $68,000

COLLECTION FLOAT -

Formula that can be used to calculate the collection float is =

Amount of average monthly check received X Average number of days it

takes to clear check

Where, amount of average monthly check =-$22,000

and average number of days for it to be cleared = 2 days

Collection float = -$22,000 x 2

= -$44,000

NET FLOAT -

Formula that can be used to calculate the NET float is =

DISBURSEMENT FLOAT - COLLECTION FLOAT

= $68,000 - $44,000

= $24,000