How to Calculate Collection or Disbursement Float for Shannara Manufacturing

Is this a collection or disbursement float for Shannara Manufacturing?

Shannara Manufacturing writes 24 checks a day with an average amount of $473 each that clear 3.25 days after they are written. The firm also receives 32 checks a day with an average amount of $526 each that are available after 2.75 days. What is the amount of the float?

Answer:

This is a disbursement float for Shannara Manufacturing.

A disbursement float is the time between when a company writes a check and when the funds are actually deducted from their account. In the case of Shannara Manufacturing, the firm writes checks that clear 3.25 days after they are written and receives checks that are available after 2.75 days.

To calculate the float amount, we need to find the difference between the time it takes for the checks to clear and the time it takes for the checks to be available. For the checks that Shannara Manufacturing writes, they clear 3.25 days after they are written. This means that the funds are not deducted from their account until 3.25 days after the check is written.

For the checks that they receive, the funds are available after 2.75 days. This means that Shannara Manufacturing has access to the funds 2.75 days after the check is received.

To find the float amount, we subtract the availability time from the clearance time:

Float amount = clearance time - availability time

Float amount = 3.25 days - 2.75 days

Float amount = 0.5 days