2 35,88 value: 5.88 points Each business day, on average, a company writes check

Question

2 35,88 value: 5.88 points Each business day, on average, a company writes checks totaling $13,000 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $24,000. The cash from the payments is available to the firm after two days. a. Calculate the company's disbursement float, collection float, and net float. (Negative amounts should be indicated by a minus sign.) Disbursement float Collection float Net float b. If the collected funds were available in one day instead of two, what would be the company's disbursement float, collection float, and net float? (Negative amounts should be indicated by a minus sign.) Disbursement float Collection float Net float

Explanation / Answer

Disbursement float is the lag it takes for payments to be deducted from the bank. Collection float is the lag it takes for receipts to be deposited into the bank.

a) Disbursement float = $13000 x 4 = $52000

Collection float = $24000 x (-)2 = (-)$48000

Net Float = $52000 - $48000 = $4000

b) Disbursement float will remain the same at $52000 as number of days for payment does not change.

Collection float = $24000 x (-)1 = (-)$24000

Net Float = $52000 - $24000 = $28000

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.