Question

On a typical day, a company writes 54 checks worth a total of $8,440 that clear in 2.75 days. The company also collects 66 checks worth a total of $10,240 that clear in 2.25 days. Is this a collection or disbursement float? What is the amount of the float?

Answer 1

Solution :

The formula for calculating the amount of 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 = $ 8,440   ; No. of days required for clearance = 2.75 days

Thus the amount of Disbursement float = $ 8,440 * 2.75 = $ 23,210

The formula for calculating the amount of 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 = $ 10,240   ; No. of days required for clearance = 2.25 days

Thus the amount of Collection float = $ 10,240 * 2.25 = $ 23,040

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

Thus the amount of Float is = Disbursement float - Collection float

= $ 23,210 - $ 23,040

= $ 170

The amount of float = $ 170