Asked by Prince Saini on May 23, 2024
Verified
Which best describes why firms maintain float?
A) Float refers to the difference between the firm's available or collected balance at its bank and the firm's net income statement.
B) Float refers to the difference between the firm's available or collected balance at its bank and the firm's balance sheet.
C) Float refers to the difference between the firm's available or collected balance at its bank and the firm's book, or ledger, balance
D) Float refers to the difference between the firm's available or collected accounts receivable balance at its bank and the firm's book, or ledger, balance.
Float
The time difference between when a check is written and when the corresponding amount is actually withdrawn from the payer's account.
Collected Balance
Collected Balance refers to the amount of funds in a bank account that is available and has been processed completely, distinguishing it from the ledger balance.
Ledger Balance
The total balance of a bank account, calculated at the end of each business day, including all deposits and withdrawals that have been posted to the account.
- Identify the reasons why firms maintain cash balances and the purposes of holding marketable securities.
Verified Answer
AF
Alima FaginMay 27, 2024
Final Answer :
C
Explanation :
Float refers to the difference between the firm's available or collected balance at its bank and the firm's book, or ledger, balance. Firms maintain float to allow for time lags in processing payments and to have funds available for unexpected expenses. By keeping some funds in float, firms can have greater financial flexibility and avoid potential cash flow problems.
Learning Objectives
- Identify the reasons why firms maintain cash balances and the purposes of holding marketable securities.