Float (Part 3 of 3)

A long time ago, I was a manager for a retail store. As such, I was responsible for maintaining inventory and cash and doing the bookkeeping for store using company-approved accounting methods. While doing this after a particularly slow day, at the end of the day, there was a negative total. That's right, the store actually lost real money that day.

Not in terms of that the profits were not enough to cover expenses, but in real, absolute terms. Granted, it was not a lot of money, but the profits were less than zero. As the years moved on, I had forgotten about this episode.

Then, I started running my own bots and designed a spreadsheet to track in real terms how much profit I was getting. As the bot was new, the amount of profit was more or less steady with a slight upward tick. But I had days where my absolute profit of a certain day was negative. It actually cost me real money to run the bot that day. I began to wonder why this was happening. Then I realized the problem: float.

Flaot, that concept which many businesses love because people are simply giving a company money for nothing, does have a dark side. When float is redeemed, it causes a negative entry to be entered in the balance-sheet. When the float was given to a company, it is recorded as pure profit. So while in theory nothing really happened that shouldn't, because of the quirks of accounting, I had lost money.

Let's use an example: A new customer comes in, buys a card for .10 and pays with a ticket. Customer now has a .90 credit. As I have no other customers that day, I have gained 1.00 minus the cost of the card, say .06, so profit is .94. Customer returns the next day and uses his .90 on product that cost me .80. Customer now has zero (0) balance. Again, he is my only customer that day. But I gained zero (0) tickets, and .80 of product left the bot, therefore I “lost” .80 for the day.

But if you look at the two days, you see that I gained a ticket, gave up product costing me .86 and my profit is .14. Day 1's profit is .94, day 2 is -.80; totaling .14. So the math works.

I know this can be difficult to follow. But these accounting anomolies do show up when dealing with float.

This concludes this series on float. Next time, I'll tell a story. For those who celebrate, Merry Christmas.

By the way, this weird accounting anomaly is partially to blame for the current economic malaise the globe is experiencing. Profits were unnaturally reported and when the float was redeemed, the losses appeared greater than expected because the profits were never “real”.