Question

Which of the following help to reduce the size of a company’s float?

a. Petty cash accounts.
b. Bank reconciliation procedures.
c. Lockbox accounts.
d. Imprest accounts.

Answer 1

C. Lockbox Accounts

Step-by-step explanation:

A company's cash float is the difference between the balance in your own accounting system and your balance with the bank. A lockbox account is a good solution to the float issue.

A lockbox account helps organisations to quickly process payments from their customers. The lockbox is a physical mailing system run by the bank on behalf of a company. Customers send their payments to one or more post office lock boxes and a designated bank official retrieves them on a daily basis, processes the payments into the client's account and send the client a report at the end of the day.

By the end of the day, the payments are already in the client's account and the client's financial books are also updated based on the lockbox reports from the banks. The cash float period is, therefore, reduced.