Float is defined as which of the following?

Float is defined as which of the following?

• A. The time from shipment to delivery of drug from manufacturer to distributor.
• B. The time difference between when a wholesaler receives payment from its customer and when payment is due to its suppliers.
• C. The time it takes for an invoice to be processed by accounting.
• D. The interest earned on unpaid invoices.

Answer: (B)

Float is the period during which cash is in transit and can be used by the business before it must be paid out. In a wholesaler’s cash flow, this shows up as the time between when a customer’s payment is received and when the firm actually pays its suppliers. That window lets the company use cash in the interim, improving liquidity. Therefore, the option describing the time difference between receiving customer payments and due payments to suppliers best captures float. The other options describe logistics (time from shipment to delivery), accounting processing time, or interest on unpaid invoices, which are not float.

Float is the period during which cash is in transit and can be used by the business before it must be paid out. In a wholesaler’s cash flow, this shows up as the time between when a customer’s payment is received and when the firm actually pays its suppliers. That window lets the company use cash in the interim, improving liquidity. Therefore, the option describing the time difference between receiving customer payments and due payments to suppliers best captures float. The other options describe logistics (time from shipment to delivery), accounting processing time, or interest on unpaid invoices, which are not float.