loat is defined as the difference between the balance shown on the books and the balance in the bank account. A lag often occurs between the time receipts and disbursements are recorded on the company’s books and when the transactions clear the bank. Consider the following scenario: Sandberg Industries received a $100,000 check from one of its customers, deposited it into its bank account, and recorded it in its bank register. The funds were reflected in Sandberg’s bank account two days later. What type of float does this scenario describe? a)Collection float b)Disbursement float c)Net float Next, consider the case of Windsor Flooring Company: The management at Windsor Flooring has determined that it takes an average of eight days for checks the company writes to clear its bank account. Cash receipts from customers are reflected in Windsor’s bank account an average of four days after the checks are received. On an average day, Windsor writes checks that total $30,000, and it receives checks from customers that total $40,000. Compute the collection float, the disbursement float, and the net float in dollars in the following table. (Note: By definition, collection float is always considered negative, and disbursement float is always positive. Both should be shown as positive numbers here. The net float, however, should be shown as positive if it is favorable and as negative if it is unfavorable.) Windsor Flooring Company Float Calculations Collection float ? Disbursement float ? Net float ? Given this information, you can deduce that on an average day, Windsor Flooring’s bank balance is (___) its book balance.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter10: Auditing Cash, Marketable Securities, And Complex Financial Instruments

Section: Chapter Questions

Problem 32CYBK

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loat is defined as the difference between the balance shown on the books and the balance in the bank account. A lag often occurs between the time receipts and disbursements are recorded on the company’s books and when the transactions clear the bank.

Consider the following scenario:

Sandberg Industries received a $100,000 check from one of its customers, deposited it into its bank account, and recorded it in its bank register. The funds were reflected in Sandberg’s bank account two days later.

What type of float does this scenario describe?

a)Collection float

b)Disbursement float

c)Net float

Next, consider the case of Windsor Flooring Company:

The management at Windsor Flooring has determined that it takes an average of eight days for checks the company writes to clear its bank account. Cash receipts from customers are reflected in Windsor’s bank account an average of four days after the checks are received. On an average day, Windsor writes checks that total $30,000, and it receives checks from customers that total $40,000.

Compute the collection float, the disbursement float, and the net float in dollars in the following table. (Note: By definition, collection float is always considered negative, and disbursement float is always positive. Both should be shown as positive numbers here. The net float, however, should be shown as positive if it is favorable and as negative if it is unfavorable.)

	Windsor Flooring Company
Float Calculations
Collection float	?
Disbursement float	?
Net float	?

Given this information, you can deduce that on an average day, Windsor Flooring’s bank balance is (___) its book balance.

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