Ingrid has $12,700 on deposit with no outstanding checks or uncleared deposits. If she deposits a check for $2,400, does this create a disbursement float or a collection float? What is her available balance? Book balance?
In cash management, a disbursement float occurs with a transaction that reduces the cash balance. In contrast, a collection float occurs with a transaction that increases the cash balance.
Answer and Explanation:
The deposit increases the cash balance, so it presents a collection float. Since the deposit of a check will take time to clear, the funds deposited will not become available immediately. As a result, the available balance remains the same at $12,700. But the book balance will increase the amount of the deposits, so the new book balance = 12,700 + 2,400 = 15,100.
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Learn more about this topic:
from Finance 101: Principles of FinanceChapter 18 / Lesson 4