7. Check clearing and the use of float Aa Aa E Float 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: Jones 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 Jones's bank account two days later. What type of float does this scenario describe? Collection float Disbursement float Net float Next, consider the case of Murphy Flooring Company: The management at Murphy Flooring has determined that it takes an average of four days for checks the company bank account. Cash receipts from customers are reflected in Murphy's bank account an average of four days after the checks are received. On an average day, Murphy writes checks that total $10,000, and it receives checks from customers that total $20,000. 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.) Murphy Flooring Company Float Calculations Collection float Disbursement float Net float Given this information, you can deduce that on an average day, Murphy Flooring's bank balance is its book balance