Answer (A) is correct . The float period is the time between when a check is written and when it clears the payor’s checking account. Check float results in an interest-free loan to the payor because of the delay between payment by check and its deduction from the bank account. If checks written require 1 more day to clear than checks received, the net float equals 1 day’s receipts. The company will have free use of the money for 1 day. In this case, the amount is $10,000.
Answer (B) is incorrect because The company enjoys 1 day’s net float because its checks clear more slowly than its deposits.
Answer (C) is incorrect because The net float is positive. The company can write checks (up to $10,000) even when it has no money because the checks do not clear until a day after deposits clear.
Answer (D) is incorrect because The net float represents the difference between when deposits clear and when disbursements clear.
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