Asked by Reveti Kuche on Jul 07, 2024
Verified
Your firm receives 30 cheques from customers on an average day. These cheques, on average, are worth $45 each, and are processed and clear the bank in 5 days. In addition, your firm mails out 20 cheques a day with an average amount of $42. These cheques clear your bank in 4 days. What is the average amount of the collection float?
A) $3,360
B) $3,390
C) $6,750
D) $7,240
E) $10,110
Collection Float
The time period between when a payment is made by a customer and when the funds become available to the recipient.
Cheques
Financial instruments that instruct a bank to pay a specific amount of money from a person's account to another individual or entity.
Processed
Refers to items or data that have been altered, refined, analyzed, or prepared through a series of actions for a specific use or purpose.
- Understand the concept of float in financial management and its components (collection, disbursement, and net floats).
- Determine the average daily and weighted delays in collections and disbursements.
Verified Answer
AB
ALLYSON BOWLESJul 14, 2024
Final Answer :
C
Explanation :
The average amount of the collection float is calculated by multiplying the average number of cheques received per day by the average value of each cheque and then by the number of days it takes for the cheques to clear. So, for 30 cheques at $45 each, taking 5 days to clear, the calculation is 30 * $45 * 5 = $6,750.
Learning Objectives
- Understand the concept of float in financial management and its components (collection, disbursement, and net floats).
- Determine the average daily and weighted delays in collections and disbursements.