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 companys books and when the transactions clear the bank.

Consider the following scenario:

Graham Industries received a $60,000 check from one of its customers, deposited it into its bank account, and recorded it in its bank register. The funds were reflected in Grahams bank account two days later.

What type of float does this scenario describe?

Collection float

Net float

Disbursement float

Next, consider the case of Herman Flooring Company:

The management at Herman 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 Hermans bank account an average of two days after the checks are received. On an average day, Herman writes checks that total $20,000, and it receives checks from customers that total $30,000.

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.)

	Herman Flooring Company
Float Calculations
Collection float
Disbursement float
Net float

Given this information, you can deduce that on an average day, Herman Floorings bank balance is greater/less/equal its book balance.