Disbursals play a vital role in financial management, encompassing allocating and releasing funds to meet obligations across various sectors. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

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Related Finance Terms

The cash disbursement journal is posted to the general ledger every month. In business, the regular recording of all disbursements of cash is a crucial method of keeping tabs on the expenditures of the business. In broader terms, the word disbursement is used in a variety of contexts, from the crediting of student loan money to a withdrawal from a retirement account. Department of Education’s Office of Federal Student Aid, a disbursement is the actual payment of the funds into an account that will support a student’s studies in the upcoming semester. If the loan amount exceeds the actual costs of tuition and fees, a refund of the excess is paid directly to the student. A positive disbursement results in a credit to an account, while a negative disbursement results in an account debit.

• When writing a check from a business account, referring to the payment as a disbursement check is usually appropriate.
• With this understanding, you can make informed financial decisions, ensuring the financial well-being and growth of your company.
• The accounting department typically records payments in this journal before officially noting them in the general ledger.
• Disbursement was minted in English in the late 16th century by melding the noun suffix -ment with the verb disburse.
• Reimbursement alimony is ordered by a judge and is a payment made to an ex-spouse as reimbursement for time and money invested in the spouse’s financial prospects and growth.
• All disbursements are recorded in the general ledger to show how a business spends money over time.
• In simple terms, a cash disbursement journal involves a double-entry bookkeeping system with debit and credit entries.

The total value of the credit is $15,500, but Company B offered a discount of $500 to the company since it made the payment on time. The disbursement process transforms payment data into a disbursement instrument, liquidating the payable and generating payments to the vendor. The specific transaction varies but is typically recorded as an expense on the organization’s financial statements. Each disbursement is recorded, including recipient details, payment amount, purpose, date, and any relevant reference numbers. This is initiated by recognizing financial responsibilities such as bills, salaries, loans, taxes, and other obligations. Authorization for fund disbursement typically requires managerial approval, adherence to financial procedures, and compliance with legal and contractual obligations.

How to show disbursements and recharges on your invoices

Disbursement is a critical term in business and finance as it refers to the payment of money from a fund or account. This term can encompass various transactions, including payroll, dividends, or even cash payouts to shareholders. Disbursements vary in type, from operating expenses such as salaries and utilities, to capital expenditure on land or equipment.

• Tax refunds provided to the taxpayer by the government are a form of reimbursement, as the money being returned to the taxpayer is due to a previous overpayment.
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• When a business spends money it can pay for it at the moment the items or services are delivered or it can do it some days later, through commercial credit.
• Employees, insurance policyholders, and taxpayers can file for an expense that never occurred or inflate the value of an expense.
• Options trading entails significant risk and is not appropriate for all customers.

A disbursement is always a form of payment, but a payment may not be a disbursement if it’s made with funds not owned by the company or person making the payment. Payments may also be made from a source other than a larger account; a disbursement will almost always come from an account. They provide insights into cash allocation, such as expenditure on inventory versus other expenses. Additionally, the ledgers help identify missing or inaccurately recorded checks by documenting check numbers.

More from Merriam-Webster on disbursement

They document each disbursement and post it to the appropriate ledgers. When the funds are disbursed, the company adjusts its cash balance to account for the funds transfer. This provides an up-to-the-minute snapshot of a company’s cash position and available funds. Managers can review the disbursement records to see how cash is being spent and check for any surprises.

A negative disbursement may occur if financial aid funds are overpaid and later withdrawn from the student’s account. Federal and private student loans are generally disbursed two or more times during the academic year. The student receives a credit to pay tuition and fees and will receive any remaining balance by check or direct deposit. Disbursement and reimbursement are not the same, as disbursements are cash payments (or the equivalent), and reimbursements are the payments that cover the original disbursement.

How Does Disbursement Work?

Still, most companies continue to use checks for the advantages they offer. When the receiving banks request money from the issuing bank, the bank that issued the check sends the funds to the banks that received the checks, completing the disbursement of funds. When you apply for a loan, your lender can either refuse to lend you money or agree to give disbursement meaning in accounting you the cash that you requested. If the lender approves your application, they need to provide you with the money somehow. The process of transferring cash from the lender’s accounts to yours is a loan disbursement. Almost any type of cash payment from one person or organization’s account to an account owned by someone else counts as a disbursement.