Posted in Finance, Accounting and Economics Terms, Total Reads: 65
Definition: Negative Float
Negative Float is the difference between a person’s ledger account and his present bank account balance. This is due to the time lag that occurred due to the processes undertaken by the banking authority for the transfer of funds from one place to another. This time lag does not affect the other transactions and are independent of other.
So when a person writes a check to another person, the transaction is recorded in his account but still his bank account would not be debited yet, this occurs because of the time taken by the banks to process his request. So there will be a difference of amount in personal register of that person and his bank balance amount, which is termed as a negative float.
Suppose the person withdraws more amount than he deposits and due to this time lag this can result that the cash amount might not be available at withdrawal or the cheques written may bounce. Suppose a person has 1000 Rs in bank account and if he deposits another 1000 the same day and if he tries to withdraw 1500Rs the next day, he will not able to withdraw it as the bank account is not processed yet and the bank account will show 1000 Rs but his personal register will show transaction of 2000 Rs.
Negative float has now reduced due to the advancement of it technology and widely interconnected banking system, so the transfer time period has reduced to a great extent and services have become much faster.