CPA exam question


A

alberta

Dear all,

I am preparing for the CPA exam now and I was a little confused with
the concept "float."

Here is the question:
Assume that each day a company writes and receives checks totaling
$10,000. If it takes five days for the checks to clear and be deducted
from the company's account, and only four days for the deposits to
clear, what is the float?

a.$10,000
b.$0
c.$(10,000)
d.$25,000

and the answer is a.

According to my text book,float occurs when there is difference bewteen
the balance in a company's cash accounts and the balance in
the bank's records.Of course I know that the amount is the difference
between my company's account and bank's records,which is $10,000,but I
don't know how to distinguish between positive and negative float. What
do they stand for? Can you tell me the meaning of these two kinds of
float? Otherwise I was inclined to choose the answer c. rather than a.

Thanks for your help.

Best Regards,
Alberta
 
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P

Peter Saxton

Dear all,

I am preparing for the CPA exam now and I was a little confused with
the concept "float."

Here is the question:
Assume that each day a company writes and receives checks totaling
$10,000. If it takes five days for the checks to clear and be deducted
from the company's account, and only four days for the deposits to
clear, what is the float?

a.$10,000
b.$0
c.$(10,000)
d.$25,000

and the answer is a.

According to my text book,float occurs when there is difference bewteen
the balance in a company's cash accounts and the balance in
the bank's records.Of course I know that the amount is the difference
between my company's account and bank's records,which is $10,000,but I
don't know how to distinguish between positive and negative float. What
do they stand for? Can you tell me the meaning of these two kinds of
float? Otherwise I was inclined to choose the answer c. rather than a.

Thanks for your help.

Best Regards,
Alberta
Is this the standard of questions in a CPA exam?

And is the OP representative of the people sitting the exam?
 
B

Barnabas Collins

Dear all,

I am preparing for the CPA exam now and I was a little confused with
the concept "float."

Here is the question:
Assume that each day a company writes and receives checks totaling
$10,000. If it takes five days for the checks to clear and be deducted
from the company's account, and only four days for the deposits to
clear, what is the float?

a.$10,000
b.$0
c.$(10,000)
d.$25,000

and the answer is a.
Here in the real world 2006 post 9/11 the answer would be zero (B.)
You present a check today, a copy can be presented in minutes to
your bank today and the check can clear today. All from a
copy of that check. That was put through post 9/11.

And the original check can be destroyed, the bank can honor
a copy as an original.
 
P

Paul Thomas

Barnabas Collins said:
Here in the real world 2006 post 9/11 the answer would be zero (B.)
You present a check today, a copy can be presented in minutes to
your bank today and the check can clear today. All from a
copy of that check. That was put through post 9/11.


The enactment date of "Check 21" has little to do with the events and
aftermath of 9/11. And it's generally not "presented in minutes", but
generally by the next business day the transaction is a done deal. Chances
are, and with exceptions for new account limitations, a deposited item is
cleared through and available in less than three business days.
 
A

All My Shrimp Was Dead and Gone

When I sat for the CPA exam in the late 70s that question would NOT have
appeared on the test.

I'm amazed a question like that would be given.
 
H

Holly J. Sommer

All said:
When I sat for the CPA exam in the late 70s that question would NOT have
appeared on the test.

I'm amazed a question like that would be given.
Having taken one section recently, it wouldn't. THat looked more like a
review in preparation for reconciliations. "Float" is not something
which was "taught" in college, to me anyhow. The concept was covered
(reconciliation) but not that layperson's term.
 
H

Holly J. Sommer

alberta said:
Dear all,

I am preparing for the CPA exam now and I was a little confused with
the concept "float."

Here is the question:
Assume that each day a company writes and receives checks totaling
$10,000. If it takes five days for the checks to clear and be deducted
from the company's account, and only four days for the deposits to
clear, what is the float?

a.$10,000
b.$0
c.$(10,000)
d.$25,000

and the answer is a.

According to my text book,float occurs when there is difference bewteen
the balance in a company's cash accounts and the balance in
the bank's records.Of course I know that the amount is the difference
between my company's account and bank's records,which is $10,000,but I
don't know how to distinguish between positive and negative float. What
do they stand for? Can you tell me the meaning of these two kinds of
float? Otherwise I was inclined to choose the answer c. rather than a.
Well, since the discrepancy of deposits clears earlier than the
discrepancy of withdrawals does, that's a "positive" for the company,
ergo, a positive amount.
 
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B

Barnabas Collins

The enactment date of "Check 21" has little to do with the events and
aftermath of 9/11. And it's generally not "presented in minutes", but
generally by the next business day the transaction is a done deal. Chances
are, and with exceptions for new account limitations, a deposited item is
cleared through and available in less than three business days.
But be foerwarned though even before check 21 (which was instituted as
a result of 9/11 or so the banks claimed in their literature) checks
could clear in one day. We got notices from Bank of America saying
it was the result of 9/11. I've had checks mailed to large corporate
vendors who got their mail that day and the check cleared that day.
Now this happens alot more, the bank enters those numbers on the
bottom of the transactions is treated like a credit/debit transaction
that claers much faster.

I'm not sure how they did it but I have one Vendor in Pennsylvania
(large corporation) they got their mail at a post office box,
i'd mail the check on a Thursday, they'd receive it that
Thursday, and it would clear that day. And this was before
Check 21. The mail would be picked up at noon and somehow they
got it that day.

But be forewarned, if the check is delivered at 2pm, deposited
immeidatedly, and the bank puts the transaction through it
can be in a matter of minutes. Assume this can be done or
you'll bounce checks.

Yeah it may take a day or two for it to happen but unless you
like bounced check charges assume the worst case and
that it will clear in minutes.

Bear in mind with Check 21 the bank puts it through as
a credit card type transaction using those numbers
on the bottom. The result is they can clear it much
faster. Don't rely on the float being there.

That is the reason they did it.
 
A

alberta

All My Shrimp Was Dead and Gone 寫é“:
When I sat for the CPA exam in the late 70s that question would NOT have
appeared on the test.

I'm amazed a question like that would be given.
I think it is because the CPA exam added another new content in recent
years and this question comes from the new subject called "Business
Environment and Concept."It tests Economics,Financial
Management,AIS,and Cost Accounting,etc..Thanks for all your
explanations. :)
 
A

alberta

Peter Saxton 寫é“:
Is this the standard of questions in a CPA exam?

And is the OP representative of the people sitting the exam?
Yes this is a standard question in tne CPA exam.
No I'm just a ordinary student preparing for the test and I have some
confusion that I need to figure out.
 
A

alberta

Holly J. Sommer 寫é“:
Well, since the discrepancy of deposits clears earlier than the
discrepancy of withdrawals does, that's a "positive" for the company,
ergo, a positive amount.
So does determining the positive or negative amount of float only
depend on the company's account?If it takes longer to give money to
others than to take money from others it will represent a positive
amount.Conversely,if it takes longer to take money from others than to
give money to others,it will represent a negitive float,am I right? I
think it has nothing to do with the bank's records anymore,right?
 
T

tjsita

Yes, I agree.

The float is positive in this example, because, you potentially enjoy
one extra day of "credit" in terms of the lag between payments hitting
your bank account, vis-a-vis, receipts doing so.

To illustrate this better, consider the example below. For a
transaction on day T, the effect on the bank balance will be as
follows:

Date Cumulative Receipts Cumulative
Payments
T to T+3 0
0
T+4 10,000
0
T+5 20,000
10,000
T+6 30,000
20,000 and so on....

Cheers
TJ
 
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H

Holly J. Sommer

alberta said:
Holly J. Sommer 寫é“:

So does determining the positive or negative amount of float only
depend on the company's account?If it takes longer to give money to
others than to take money from others it will represent a positive
amount.Conversely,if it takes longer to take money from others than to
give money to others,it will represent a negitive float,am I right? I
think it has nothing to do with the bank's records anymore,right?
Correct. This was a question about the company's records anyhow. Inverse
relationship for the bank, though they wouldn't call it "float" either.
A reconciliation is a reconciliation is a reconciliation. Just reverse
the signs when moving from one party's POV to the other's.
 

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