The correct answer is: B. Float
A float is a temporary difference between the balance of a bank account as shown in a bank statement and the balance of the same account shown in the books of the account holder. It can occur for a variety of reasons, including:
- Time lags between transactions being recorded by the bank and the account holder. For example, when a check is written, it may take several days for the bank to process it and deduct the amount from the account holder’s balance.
- Transactions that have been recorded by the bank but not yet by the account holder. For example, if a deposit is made at an ATM, it may take several days for the bank to process it and add the amount to the account holder’s balance.
- Transactions that have been recorded by the account holder but not yet by the bank. For example, if a check is deposited, it may take several days for the bank to process it and add the amount to the account holder’s balance.
The float can be either positive or negative. A positive float occurs when the balance in the bank statement is higher than the balance in the account holder’s books. This can happen, for example, if a check has been written but not yet cashed. A negative float occurs when the balance in the bank statement is lower than the balance in the account holder’s books. This can happen, for example, if a deposit has been made but not yet processed by the bank.
The float can have a significant impact on the cash flow of a business. For example, if a business has a positive float, it may be able to delay paying its bills without having to worry about running out of cash. Conversely, if a business has a negative float, it may need to borrow money to cover its expenses.
Businesses can manage the float by carefully planning their cash flow and by working with their banks to minimize the time lags between transactions.
Overdraft is a situation in which a bank account balance falls below zero. This can happen when a customer withdraws more money from the account than is available. Overdrafts can be costly, as banks typically charge fees for them.
Factoring is a financial arrangement in which a company sells its accounts receivable to a third party, called a factor. The factor then collects the payments from the customers and pays the company a portion of the amount owed, less a fee. Factoring can be a useful way for companies to improve their cash flow.
None of the above options are the correct answer.