Asked by Darshpreet Singh on Jul 14, 2024
Verified
Martin's Methods, an educational training firm, has taken steps to reduce the time taken to process the cheques received from its customers from four days to two. Additionally, the firm has switched banks, as its prior bank made funds available for withdrawal one day after deposit, while the new bank makes deposits available immediately. All else the same, these steps should __________ the firm's __________ float.
A) Increase; net.
B) Increase; collection.
C) decrease; net
D) Decrease; disbursement.
E) Not change; net.
Collection Float
The time period between when a check is written and deposited and when the funds are actually available in the payee's account.
Net Float
Net float is the difference between the balance according to the bank's records and the balance according to the company's records, due to checks or other transactions in the process of clearing.
- Develop an understanding of the notions and significance of collection and disbursement float in the optimization of cash management.
- Grasp the significance of reducing processing time for cheques and the impact of banking choices on a firm’s float.
Verified Answer
JE
Jheri ElliottJul 19, 2024
Final Answer :
C
Explanation :
Decreasing the time to process cheques and switching to a bank that makes funds available immediately reduces the time between when a customer sends a payment and when the funds are available for use by the firm, thus decreasing the firm's net float.
Learning Objectives
- Develop an understanding of the notions and significance of collection and disbursement float in the optimization of cash management.
- Grasp the significance of reducing processing time for cheques and the impact of banking choices on a firm’s float.