Negative float definition
What is a negative float?
“Negative float” refers to the difference between checks written or deposited in a checking account and checks that have cleared (according to bank statements).
When a current account holder writes a check, the funds represented by the check remain in the account until the check is presented and cleared by the check writer’s bank.
Sometimes the check writer maintains a check register that shows the actual account balance based on funds on deposit, minus checks that have and have not yet cleared. The dollar amount of checks that have not yet cleared is called the negative float.
Key points to remember
- A negative cash fund is a net deficit resulting from checks that have been deposited but have not cleared in bank statements.
- Traditionally, a check writer keeps a record so they can balance the account and avoid being confused by an account balance that may show funds awaiting withdrawal to cover issued checks.
- The use of technology has accelerated the time to clear checks and account balances to be updated faster.
Understanding negative floats
A negative float, essentially, occurs when someone writes a check but the recipient has not yet deposited or cashed that check. During this time, the money is not yet deducted from the account of the writer of the check, but the amount of the check remains a liability (outgoing) for accounting purposes, because the recipient can cash the check at any time. There will also usually be a short delay of a few business days between when the check is cashed or deposited and when it is actually cleared and the money is finally deducted from the check writer’s account.
A check writer may decide to keep a record so they can balance their checking account and avoid being confused by an account balance that may show funds awaiting withdrawal to cover written checks. Checks that have been issued can take several days to clear if they are mailed or if the payee delays depositing the check.
Electronic checks and debit cards
Advances in automated banking mean that checks clear faster. Banks no longer operate solely with paper checks.
Additionally, the widespread use of ATMs and debit cards means that bank balances are updated much faster. With online banking, checking account holders can check their balances easily, and debit card transactions are usually recorded immediately and are reflected by the bank in the difference between the account balance and available funds. However, account balances are officially updated overnight, and this is when funds received or debited by paper check will be reflected.
Keep track of your debit card purchases
Although account holders can rely on online balances, debit card purchases are not always posted immediately and the account holder is still responsible for keeping track of the actual funds available in their account.
Example of negative float
For example, let’s say Sam has $15,000 of cleared or “voucher” funds in a checking account. After Sam writes and sends five checks for $1,000 each, the balance in the check register shows $10,000. However, the bank balance still shows $15,000, which means that the checks for $5,000 have not cleared the bank yet. This $5,000 is the negative float.