Average trade collections and disbursement are P72,000,000 and P57,600,000 per year. It takes a customer check an average of three days to clear the bank while it takes a company check four days. If the bank provides a 2% return on the bank balance, how much is the net benefit or (cost) of the float?
Average trade collections and disbursement are P72,000,000 and P57,600,000 per year. It takes a customer check an average of three days to clear the bank while it takes a company check four days. If the bank provides a 2% return on the bank balance, how much is the net benefit or (cost) of the float?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Average trade collections and disbursement are P72,000,000 and P57,600,000 per year. It takes a customer check an average of three days to clear the bank while it takes a company check four days. If the bank provides a 2% return on the bank balance, how much is the net benefit or (cost) of the float?
Expert Solution
Step 1
Float in banking occurs when there is a time difference between the checks deposited and checks credited to the customer count. The financial institution deposits check to the customer's bank and banks take some time to deposit the amount in the customers' bank. Till the time, the check got cleared from the payer's bank, the amount will be shown in both accounts.
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