Modos Company has deposited $2000 in checks received from customers. It has written $1400 in checks to its suppliers. The initial balance was $400. If $1600. of its own checks have cleared, calculate its float
400
To calculate the float of Modos Company, we need to understand the concept of float in banking. Float refers to the time period between when a check is written and when it is presented for payment or when funds are deposited and when they become available for withdrawal. Float essentially represents the time difference between the recording of a transaction and its ultimate settlement.
In this case, we have the following information:
- Initial balance: $400
- Deposited checks: $2000
- Checks written to suppliers: $1400
- Own checks cleared: $1600
To calculate the float, we need to find the outstanding check amount, which represents the checks written but not yet cleared. This can be calculated as follows:
Outstanding check amount = (Initial balance + Deposited checks + Own checks cleared) - Checks written to suppliers
Outstanding check amount = ($400 + $2000 + $1600) - $1400
Outstanding check amount = $4000 - $1400
Outstanding check amount = $2600
Hence, the float of Modos Company is $2600
To calculate the float, we need to determine the total funds still in transit.
1. Start with the initial balance of $400.
2. Add the amount deposited from customers, which is $2000:
$400 + $2000 = $2400.
3. Subtract the amount written in checks to suppliers, which is $1400:
$2400 - $1400 = $1000.
4. Subtract the amount of the company's own checks that have cleared, which is $1600:
$1000 - $1600 = -$600.
The negative value simply indicates that the company's funds are currently overdrawn or in a negative balance, which means there is no float available.