Asked by Patrick Alves on Jul 12, 2024
Verified
Your firm receives 85 cheques from customers on an average day. These cheques, on average, are worth $132 each, and are processed and clear the bank in 3 days. In addition, your firm disburses 10 cheques a day with an average amount of $10,400. These cheques clear your bank in 2 days. What is the average amount of the collection float?
A) $11,220
B) $33,660
C) $64,900
D) $70,340
E) $104,000
Collection Float
The time interval between when a payment is deposited and when funds become available in the company’s account, affecting cash flow.
Cheques
Written, dated and signed instruments that direct a bank to pay a specific sum of money to the bearer.
Disburses
The act of paying out or distributing funds, typically related to the operational expenses or investment payouts of a company.
- Become familiar with the role of float in financial management along with its components: collection, disbursement, and net floats.
- RP6: Compute the average daily and weighted lags in collections and disbursements.
Verified Answer
BT
Bharathish TamraparniJul 18, 2024
Final Answer :
B
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 these cheques to clear. So, it's 85 cheques * $132 each * 3 days = $33,660.
Learning Objectives
- Become familiar with the role of float in financial management along with its components: collection, disbursement, and net floats.
- RP6: Compute the average daily and weighted lags in collections and disbursements.