Question

Float: The difference between the cash balance on bank’s books and firm’s books due to timing.

–Delay in the payment of checks

–Delay in clearing of deposits

Positive: Bank Balance > Firm’s Balance

Negative: Bank Balance < Firm’s Balance

Management's Goal:

–Speed collection and slow disbursements

Components of float:

–Mail Float – Customer to Company

–Processing Float – Company Records and Deposits

–Check Clearing Float – Deposit Clears and Available

Float can be reduced or eliminated for a cost.

Required: Float is the difference between the cash balance on the bank’s books and the firm’s books due to timing. In the past, the difference typically reflected the use of checks as a source of payment. Give an example of an electronic means of payment and its impact on float. Write at least 300 words.

Please don't copy from anywhere and write in your own words. Thank You!

Answer 1

Thank you for raising the basic concern over the Bank reconciliation.

Here are the few example which causes the difference between the cash book and bank book. The first one is checks deposited but not credited by banks due to clearing timing. Second, checks issued but vendor has not deposited to clear the payment. Further charges levied by the banks but not accounted in the cash book.

To mitigate all the above timing difference, in this era we need to adopt the electronic mode of payment.

The most common example of Electronic mode of payment is Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer(NEFT). With this mode of option payment and receipt can be given or received in a single day and there would not be any chances of reconciliation.

Further apart from RTGS and NEFT one can even used the Google payment option or Paypal payment option which are very user friendly and can be executed any time and any where.

Compare to orthodox payment option like checks and bills all the electronic mode of payment are more secure and very much time saving too. And at the same time it is very economical in the monetary terms too as it cost less than a 10 cents for one transaction. In most recent times there are few players added in the electronic payment option like "Amazon", "Dwolla", "Stripe" and "Braintree" which are more faster and more economical to the comparison of orthodox payment option.

Now a days even a mobile manufacturing company like "Apple" and "Samsung" have even started the service of electronic payment.