CPA exam question

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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wrote:

Is this the standard of questions in a CPA exam?
And is the OP representative of the people sitting the exam?
--
Peter Saxton from London
snipped-for-privacy@petersaxton.co.uk
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Peter Saxton 寫道:

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.
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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.
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All My Shrimp Was Dead and Gone wrote:

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.
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All My Shrimp Was Dead and Gone 寫道:

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. :)
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alberta wrote:

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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Holly J. Sommer 寫道:

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?
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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
alberta wrote:

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alberta wrote:

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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