Understanding Float

As you no doubt know, the amount of money you have according to your checkbook can be very different from the amount of money that your bank thinks you have. The reason is that some of the checks you have written haven't yet been presented to the bank for payment. The same thing is true for a business. The cash balance that a firm shows on its books is called the firm's book, or ledger, balance. The balance shown in its bank account as available to spend is called its available, or collected, balance. The difference between the available balance and the ledger balance is called the float, and it represents the net effect of checks in the process of clearing (moving through the banking system).

Float = Firm's available balance = $100,000 - 100,000

Firm's book balance

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