What Is a Negative Float?
"Negative float" refers to the difference between checks written against—or deposited in—in a checking account and those checks that have cleared (according to bank records).
When a checking account owner writes a check, the funds represented by the check remain in the account until the check is presented to and cleared by the check writer's bank.
Sometimes the check writer will maintain a check register that shows the actual account balance based on funds on deposit—minus checks which have and haven't yet cleared. The dollar amount of checks that are not yet cleared is referred to as the negative float.
- A negative float is a net deficit resulting from checks that have been deposited but have not cleared bank records.
- Traditionally, a check writer keeps a register to be able to balance the account and avoid being confused by an account balance that may show funds that are pending withdrawal to cover checks written.
- The use of technology has expedited clearing time for checks and account balances to be updated more quickly.
Understanding Negative Floats
A negative float, essentially, occurs when somebody 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 check writer's account, but the amount of the check still remains a liability (outflow) for accounting purposes, as the recipient can cash the check at any time. There will also typically be a short delay of a few business days between the time the check is cashed or deposited and when it actually clears and the money is ultimately deducted from the check writer's account.
A check writer might decide to keep a register so that they can balance their checking account and avoid being confused by an account balance that may show funds that are pending withdrawal to cover checks written. Checks that have been written may take several days to clear if they are mailed or if the payee delays in depositing the check.
Electronic Checking and Debit Cards
Advances in automated banking mean that checks clear more quickly. Banks no longer work with only paper checks.
In addition, the widespread use of ATMs and debit cards means that bank balances update much faster. With online banking, checking account holders can check their balance easily, and debit card transactions are usually posted immediately and are reflected by the bank in the difference between the account balance and available funds. However, account balances officially update 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 may rely on online balances, debit card purchases don't always post immediately, and the account holder is always responsible for keeping track of the actual funds available in their account.
Example of Negative Float
For example, say that Sam has $15,000 of cleared or "good" funds in a checking account. After Sam has written and mailed out five checks of $1,000 each, the balance in the check register reads $10,000. However, the bank balance still shows $15,000, which means that the $5,000 in checks has not been cleared by the bank yet. That $5,000 is the negative float.