### Balance shown on the books and the balance in bank account

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##### Reference no: EM131448845

1. Float is defined as the difference between the balance shown on the books and the balance in the Bank account. A lag often occurs between the time receipts and disbursements are recorded on the Company’s books and when the transactions clear the bank.

Consider the following scenario: The difference between the balance shown on jones co.’s books and the balance shown on its bank Statement is \$20,000.

What type of float does this scenario describe?

Collection float / Net float / Disbursement float

2. Next, consider the case of murphy flooring company: The management at murphy flooring has determined that it takes an average of four days for checks the company writes to clear its bank account. Cash receipts from customers have reflected in murphy’s bank account an average of four days after the checks are received. On an average day, murphy writes checks that total \$20,000 and it receives checks from that customers that total \$30,000.

Compute the collection float, the disbursement float, and the net float in dollars in the following table. (Note: by definition, collection float is always considered negative, and disbursement float is always positive .Both should be shown as positive numbers here. The net float however should be shown as positive if it is favorable and as negative if it is unfavorable.)

After reading the above, calculate the following:

a) Collections float: \$120,000 / \$80,000

b) Disbursements float: \$120,000 / \$80,000

c) Net float: \$40,000 / -\$40,000 / \$200,000

3. Given this information, you can deduce that on an average day, murphy flooring’s bank balance is less than /same as / greater than its book balance.

4. The following statement refers to a credit management policy. Select the best term to complete the sentence:

The conditions of the credit sale, including cash discounts and due dates, are indicated by the company’s: Credit standards / Collection policy / Terms of credit

5. Consider the case or stowe-arts holdings co.:

Stowe-arts holdings co. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Stowe-arts holdings co. sells to its customers on credit terms of 1/10, net 30.

If a customer bought \$175,000 worth of goods and paid the firm cash eight days after the sale, how much cash would stowe-arts holdings Co. get from the customer?

\$ 153,125

\$ 144,375

\$ 161,875

\$ 173,250

6. If the customer paid off the account after 15 days, stowe-arts holdings co. would receive \$175,000 / \$153,125 / \$140,000 / \$144,375

7. Approximately 35%of stowe-arts holdings take advantage of the discount and pay on the 10th day. The remaining 65% take an average of 35 days to pay off their accounts .what is stowe-arts holdings co.’s days sales outstanding (DSO) , or the average collection period?

31.6 days

30.2 days

22.4 days

26.3 days

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