Ledger Balances, Collected Balances and Float

1. Why This Topic Matters
Ledger balances, collected balances and float sit at the heart of corporate liquidity management and appear repeatedly on the AFP Certified Treasury Professional (CTP) exam. A treasury professional cannot manage daily cash positions, forecast short-term liquidity, evaluate bank fees or decide how much to invest or borrow without knowing exactly which balance figure to use and why. If you confuse ledger with collected or available balances, you can overdraw an account, pay unnecessary uncollected-funds charges, leave idle cash uninvested, or miscalculate the earnings credit that offsets bank fees. The exam tests this topic both conceptually (definitions, relationships, causes of float) and numerically (computing collected balances, dollar-days of float, cost of float and account analysis earnings credits). Mastering it also supports related exam areas such as cash positioning, collections and disbursements, bank relationship management and account analysis statements.

2. What the Concepts Are

Ledger Balance
The ledger balance (also called the book balance at the bank) is the balance shown on the bank's records after all debits and credits have been posted to the account for the day. It includes every deposit the bank has accepted, even if the deposited checks have not yet cleared and the bank has not yet received the funds from the paying bank. The ledger balance therefore overstates the funds the company can actually use whenever deposits are still in the process of collection.

Collected Balance
The collected balance is the ledger balance minus deposit float (also called uncollected funds or items in process of collection). It represents funds for which the bank has actually received value. Banks base most compensation on collected balances: the earnings credit on an account analysis statement is calculated on collected (not ledger) balances, and compensating balance requirements are usually stated in collected terms. Formula:
Collected Balance = Ledger Balance - Deposit Float (uncollected funds)

Available Balance
The available balance is the portion of the balance the bank allows the customer to withdraw or use. It is determined by the bank's availability schedule, which assigns 0-day, 1-day or 2-day availability to deposited items depending on where the paying bank is located and when the deposit was made. In many exam questions, available and collected balances are treated as equivalent, but technically they can differ: the collected balance reflects when the bank actually receives funds, whereas the available balance reflects when the bank grants credit under its schedule. A bank that grants availability faster than it actually collects is extending credit to the customer; a bank that grants availability slower than it collects earns extra float income.

Company Book Balance
The company's own general ledger (book) cash balance differs from the bank ledger balance because of timing differences:
Company Book Balance = Bank Ledger Balance + Deposits in Transit - Outstanding (unpresented) Checks
Equivalently, Bank Ledger Balance = Company Book Balance - Deposits in Transit + Outstanding Checks. Deposits in transit are deposits the company has recorded that the bank has not yet posted; outstanding checks are disbursements the company has recorded that have not yet been presented to the bank.

Float
Float is the dollar amount of funds in transit between parties, or the time delay between when a payment is initiated and when the funds are actually usable. It is classified in several ways:
- Collection (deposit) float: delay between when a customer mails or initiates a payment and when the receiving company has usable funds. It consists of mail float (time in the postal system), processing float (time for the company or lockbox to process and deposit the item) and availability or clearing float (time for the bank to collect the funds and grant availability). Collection float is bad for the receiving company; the goal is to minimize it.
- Disbursement float: delay between when a company issues a payment and when funds leave its account. It also includes mail, processing and clearing components. Disbursement float benefits the payer because funds remain in the account longer, though ethical and relationship constraints apply.
- Net float: Disbursement Float - Collection Float. Positive net float means the company's collected bank balance exceeds its book balance; negative net float means the opposite.
- From the bank's perspective, deposit float is the difference between ledger and collected balances (uncollected funds).

Electronic payments (wires, ACH, card settlements) carry little or no float, and Check 21 (image exchange) has sharply reduced check clearing float. Nonetheless, float remains important for companies that still receive or issue significant paper check volume.

3. How It Works: Key Mechanics and Calculations

Availability Schedules and Weighted Average Availability
Banks publish availability schedules assigning fractional or whole-day availability to deposited items. To compute the weighted average availability of a deposit, multiply each portion of the deposit by its availability days and sum.
Example: A company deposits 500,000 in checks: 20 percent are on-us or local items with 0-day availability, 50 percent have 1-day availability and 30 percent have 2-day availability.
Weighted average availability = (0.20 x 0) + (0.50 x 1) + (0.30 x 2) = 1.1 days.
Dollar-days of float = 500,000 x 1.1 = 550,000 dollar-days.

Dollar-Days and Average Daily Float
Dollar-days of float = Amount x Number of days of float.
Average daily float = Total dollar-days of float / Number of days in the period.
Example: Over a 30-day month, a company has 9,000,000 dollar-days of collection float. Average daily float = 9,000,000 / 30 = 300,000. This means, on average, 300,000 of deposits are uncollected on any given day.

Cost (or Value) of Float
Cost of float = Dollar-days of float x Opportunity cost rate / 365 (or use Average daily float x Rate x Days / 365).
Example: Using the 550,000 dollar-days above and a 5 percent opportunity cost: 550,000 x 0.05 / 365 = approximately 75.34 for that deposit. Annualized, if the company makes a similar deposit every business day, the cost becomes material and justifies services such as lockbox or electronic collection.

Computing Collected Balance from Ledger Balance
Example: The bank ledger balance is 1,000,000. Deposited checks of 200,000 have not yet been collected. Collected balance = 1,000,000 - 200,000 = 800,000. If the company writes checks totaling 900,000 against this account today and they are all presented, the account would have a negative collected balance (an overdraft of collected funds) even though the ledger balance appears sufficient, triggering uncollected-funds charges or interest.

Account Analysis Statement Flow
The account analysis statement follows this sequence, and exam questions often ask you to compute one line:
Average Ledger Balance
- Average Deposit Float (uncollected funds)
= Average Collected Balance
- Reserve Requirement (historically 10 percent; set to zero in 2020, but use whatever the question states)
= Investable (or Earnings) Balance
x Earnings Credit Rate (ECR) x Days in Period / 365
= Earnings Credit
Earnings Credit is then compared with total service charges. If charges exceed the credit, the company pays the shortfall in hard-dollar fees (or must hold higher balances).
Example: Average ledger balance 2,000,000; average float 300,000; reserve requirement 10 percent; ECR 2 percent; 30-day month.
Average collected balance = 2,000,000 - 300,000 = 1,700,000.
Investable balance = 1,700,000 x (1 - 0.10) = 1,530,000.
Earnings credit = 1,530,000 x 0.02 x 30 / 365 = approximately 2,515.07.
If monthly fees are 3,000, the company owes about 484.93 in fees.

Reconciling Book, Ledger and Collected Balances
Example: A company's book balance is 500,000. Outstanding checks total 150,000 and deposits in transit total 50,000. The bank ledger balance = 500,000 + 150,000 - 50,000 = 600,000. If, in addition, 80,000 of deposits posted by the bank are still uncollected, the collected balance = 600,000 - 80,000 = 520,000. Net float = disbursement float 150,000 - collection float (50,000 + 80,000 = 130,000) = positive 20,000, and indeed the collected balance (520,000) exceeds the book balance (500,000) by 20,000.

Managing Float in Practice
Treasury reduces collection float through lockboxes (reducing mail and processing float), remote deposit capture, electronic payments (ACH, wires, card), and concentration techniques. Disbursement float is managed through controlled disbursement accounts (which provide early notification of daily presentments so the exact funding amount is known), zero balance accounts, and payment timing policies. Daily cash positioning uses the collected or available balance, plus known same-day inflows and outflows, to determine the amount to invest or borrow. Target balances and compensating balances are typically defined in collected terms, so managing to the ledger balance would systematically overstate the company's true liquidity.

4. How to Answer Exam Questions on This Topic
CTP questions on this subject generally fall into three categories: definitional, relational and computational.
- Definitional questions ask you to identify which balance includes uncollected deposits (ledger), which balance banks use for earnings credit and compensating balances (collected), which balance reflects the bank's availability schedule (available) and which balance the company carries on its own records (book).
- Relational questions ask about direction: Is the ledger balance higher or lower than the collected balance? (Ledger is always greater than or equal to collected when deposits are in process.) Does positive net float make the bank balance higher or lower than the book balance? (Higher.) What happens to collected balances when a company switches from checks to ACH collections? (Deposit float shrinks, so collected approaches ledger.)
- Computational questions require you to plug into the formulas above: collected balance, weighted average availability, dollar-days, average daily float, cost of float, investable balance and earnings credit.

Exam Tips: Answering Questions on Ledger Balances, Collected Balances and Float

Tip 1: Identify exactly which balance the question asks for. Underline the words ledger, collected, available and book. Ledger includes uncollected deposits; collected excludes them; available follows the availability schedule; book is the company's own record. Most wrong answers on this topic come from answering with the right number for the wrong balance.

Tip 2: Memorize the core chain. Ledger - Deposit Float = Collected; Collected - Reserve Requirement = Investable; Investable x ECR x Days/365 = Earnings Credit. Write this chain on your scratch paper as soon as you see an account analysis question.

Tip 3: Know the direction of float effects. Collection float hurts the receiving company and lowers collected balances relative to ledger. Disbursement float helps the payer and raises bank balances relative to book balances. Positive net float means bank collected balance exceeds book balance. If a question says a company has negative net float, its book balance is higher than its usable bank balance.

Tip 4: Use dollar-days methodically. Multiply each amount by its float days, sum, and divide by days in the period only if the question asks for average daily float. For cost of float, multiply dollar-days by the annual rate and divide by 365 (or by 360 if the question specifies a 360-day year; follow the question's convention).

Tip 5: Apply the reserve requirement only when given. Older CTP materials use a 10 percent reserve requirement in account analysis; current regulations set it at zero. The exam will tell you what to use. If no reserve requirement is mentioned, do not deduct one.

Tip 6: Watch for negative collected balances. A positive ledger balance can coexist with a negative collected balance if large uncollected deposits are present. Banks charge uncollected-funds fees or overdraft interest on negative collected balances, and such situations are a classic exam scenario testing why treasury must position on collected, not ledger, balances.

Tip 7: Remember electronic payments have little or no float. Questions about moving from paper to electronic payments usually want you to recognize the reduction in both collection float (good for the receiver) and disbursement float (bad for the payer), and the resulting convergence of ledger and collected balances.

Tip 8: Link float to products. Lockbox reduces mail and processing float; controlled disbursement provides early presentment information for accurate funding; zero balance accounts eliminate idle balances; availability schedules determine clearing float. If a question asks which service addresses a particular float component, match the component to the product.

Tip 9: Check the reasonableness of your answer. Collected can never exceed ledger when deposit float is positive. Earnings credit for a month should be a small fraction of the balance (roughly balance x rate / 12). If your result violates these sanity checks, recheck which balance or rate you used.

Tip 10: Read the time frame. Questions may give monthly averages, daily figures or annual rates. Convert consistently: a monthly earnings credit uses Days in Month / 365; an annual cost of float uses the full year.

5. Quick Reference Summary
- Ledger Balance: all posted debits and credits, including uncollected deposits.
- Collected Balance = Ledger Balance - Deposit Float (uncollected funds); basis for earnings credit and compensating balances.
- Available Balance: funds usable per the bank's availability schedule; often approximates collected.
- Book Balance = Bank Ledger Balance + Deposits in Transit - Outstanding Checks.
- Collection Float = Mail + Processing + Availability (Clearing) Float; minimize it.
- Disbursement Float: benefits payer; managed with controlled disbursement and ZBAs.
- Net Float = Disbursement Float - Collection Float.
- Dollar-Days = Amount x Days; Average Daily Float = Dollar-Days / Days in Period.
- Cost of Float = Dollar-Days x Rate / 365.
- Investable Balance = Collected Balance x (1 - Reserve Requirement); Earnings Credit = Investable Balance x ECR x Days / 365.

Master these definitions, directions and formulas, and you will handle any ledger, collected or float question the CTP exam presents.