Question

On a typical day, a company writes 66 checks worth a total of $8,850 that clear in 2.25 days. The company also collects 78 checks worth a total of $10,840 that clear in 1.75 days. Is this a collection or disbursement float? What is the amount of the float?

On a typical day, a company writes 66 checks worth a total of $8,850 that clear in 2.25 days. The company also collects 78 checks worth a total of $10,840 that clear in 1.75 days. Is this a collection or disbursement float? What is the amount of the float? Multiple Choice O A disbursement float of $943 A collection float of $1,100 C) A collection float of $1,990 A disbursement float of $1990

Answer 1

Solution :

The formula for calculating the Disbursement float = Total Amount disbursed through checks * No. of days required for check clearance

As per the information given in the question we have

Total Amount disbursed through checks = $ 8,850   ; No. of days required for clearance = 2.25 days

Thus the Disbursement float = $ 8,850 * 2.25 = $ 19,912.50

The formula for calculating the Collection float = Total Amount collected through checks * No. of days required for check clearance

As per the information given in the question we have

Total Amount collected through checks = $ 10,840   ; No. of days required for clearance = 1.75 days

Thus the Collection float = $ 10,840 * 1.75 = $ 18,970

Since the disbursement float is greater than collection float, the float is a disbursement float.

Thus the Net disbursement Float is = Disbursement float - Collection float

= $ 19,912.50 - $ 18,970

= $ 942.50

= $ 943 ( when rounded off to the nearest whole number )

The disbursement float = $ 943

Thus the solution is Option 1: A disbursement float of $ 943