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    Cash balance/ float concepts

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    A company has the following cash balance:
    Company's ledger balance = $600,000
    Bank's ledger balance = $625,000
    Available balance = $550,000

    a. Calculate the payment float and availability float
    b. Why does the company gain from the payment float?
    c. Suppose the company adopts a policy of writing checks on a remote bank. How is this likely to affect the three measures of cash balance?

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    Solution Preview

    a) Payment Float = Bank's ledger balance - Company's ledger balance
    =$625,000 - $600,000 = $25,000

    Availability Float = Bank's ledger balance - Available Balance
    =625,000 -550,000 = 75,000

    b) The finance manager adjusts the companies ledger balance when the checks are issued by him / her but the bank balance for the company will adjust its accounts only when the checks are presented ...

    Solution Summary

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