7. Check clearing and the use of float 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: Sandberg Industries sent a $20,000 check to one of its suppliers and recorded it on its books. The funds were available in Sandberg's account until the payment cleared five days later. What type of float does this scenario describe? Collection float Net float Disbursement 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 two days after the checks are received. On an average day, Windsor writes checks that total $40,000, and it receives checks from customers that total $50,000. 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