Definition of disbursement

What is disbursement?

Disburse means to pay money. The term disbursement can be used to describe money paid into a company’s operating budget, the release of a loan amount to a borrower, or the payment of a dividend to shareholders. Money paid through an intermediary, such as a lawyer’s payment to a third party on behalf of a client, can also be called a disbursement.

For a business, disbursement is part of cash flow. It is a statement of current expenses. If cash flow is negative, i.e. disbursements are greater than income, this may be a warning sign of insolvency.

A disbursement is the actual delivery of funds from a bank account.

Key points to remember

  • A disbursement is the actual remittance of funds from one party’s bank account to another.
  • In business accounting, a disbursement is a cash payment for a specific period of time and is recorded in the company’s general ledger.
  • This record of disbursements shows how the company spends money over time.
  • Dividend payments to shareholders are often referred to as disbursements.
  • Money from a student loan paid into a school’s account on behalf of a student is called a disbursement.

How disbursement works

In accounting, a disbursement is a payment made by the company in cash or cash equivalents for a specified period of time, such as a quarter or a year. An accountant records each transaction and records it in one or more ledgers, such as a disbursement journal and the big general book.

An entry for a disbursement includes the date, payee name, amount debited or credited, method of payment, and purpose of payment. The company’s overall cash balance is then adjusted to reflect the cash outflow.

Cash outflows are a record of money going out of the business and may differ from actual profits or losses. For example, a company using the accrual method reports expenses when they occur, not necessarily when they are paid, and reports income when earned, not when received.

The type of items listed in the general ledger depends on the business. A retailer has payments for inventory, accounts payable, and wages. A manufacturer has transactions for raw materials and production costs.

Managers use the records to determine how much money has been disbursed and to track it. For example, management can see how much money is being spent on inventory versus other costs. Since the general ledger records the numbers of issued checks, managers can also see if checks are missing or misrecorded.

A disbursement is a cash outflow. It can be any form of payment.

Disbursement Types

There are other, more obscure uses of the word disbursement, including controlled disbursement and deferred disbursement (also called remote disbursement).

Controlled disbursement

Controlled disbursement is a type of cash management service that banks make available to their corporate customers. It allows them to review and reschedule disbursements on a day-to-day basis. This gives them the opportunity to maximize the interest they earn on the money in their accounts by delaying the precise moment when a sum of money is debited from the account.

Disbursement delayed

Disbursement delayed, also called remote disbursement, deliberately lengthens the payment process by paying with a check drawn on a bank in a remote area. In the days when a bank could only process a payment when the original paper check was received, this could delay the debit to the payer’s account for up to five business days.

The widespread acceptance of an electronic copy of a check instead of the original paper check made this tactic difficult to implement.

Disbursement vs Drawdown

A withdrawal from a retirement account is called a disbursement. Once the money is disbursed, it is recorded in the account as a drawdown on the balance.

As stated above, a disbursement is a payment. A withdrawalhowever, is the consequence of a particular type of disbursement.

If you withdraw money from a retirement account, you receive a cash payout. This disbursement represents a debit from your account balance.

Say you’re a retiree and you withdraw 10% of a $100,000 balance in a traditional IRA account. This $10,000 you receive is a payout from your IRA. This also represents a withdrawal of $10,000, or 10%, from your account, which now shows a balance of $90,000.

In general, a drawdown is a measure of a decline from an all-time high. A 10% reduction in the size of a military force could be described as a 10% withdrawal of forces. An oil company that exploits 3% of its proven oil reserves will incur a 3% levy on its supply.

Examples of disbursements

While pursuing a court case, a lawyer must keep a record of disbursements made on behalf of a client. This may include payments to various third for costs incurred in the case, including court costs, private investigator services, courier services and expert reports.

Properly documenting these costs is crucial in a legal case to accurately determine the client’s losses and create an understanding of the damages claimed. The lawyer must notify the client and the insurance company before incurring large out-of-pocket costs, and the client must reimburse the lawyer.

Student loan disbursement

A student loan disbursement is the disbursement of loan proceeds on behalf of a borrower, which is the student. Schools and loan officers notify students of the expected receipt of disbursements in writing, including the amount of the loan and its effective date.

Federal and private student loans are typically disbursed two or more times during the academic year. The student receives credit towards paying tuition and fees and will receive any remaining balance by check or direct deposit.

Positive and negative disbursement

A loan disbursement can be positive or negative. A positive disbursement results in a credit to an account, while a negative disbursement results in a debit from the account. A negative disbursement may occur if financial aid funds are overpaid and later withdrawn from the student’s account.

Disbursement FAQs

Here are answers to some frequently asked questions about disbursements.

What is a loan disbursement?

A loan is disbursed when the agreed amount is actually paid into the borrower’s account and it is ready for use. The money was debited from the lender’s account and credited to the borrower’s account.

Is a payment a refund?

In the jargon of the U.S. Department of Education’s Office of Federal Student Aid, a disbursement is the actual disbursement of funds into an account that will support a student’s education in the upcoming semester. If the loan amount exceeds the actual cost of tuition and fees, a refund of the excess is paid directly to the student.

What is the difference between a disbursement and a payment?

A disbursement is a payment. The word disbursement implies a payment that has been finalized. That is, it was correctly recorded as a debit on the payer’s side and a credit on the payee’s side.

What is a disbursement fee?

Disbursement fees are generally charged by a supplier to cover payments made by the supplier in connection with its work on behalf of a client. For example, FedEx may pay duties and taxes for a shipment on behalf of a customer and then add a disbursement charge to its invoice to the customer to cover the payments.

The essential

A disbursement is a payment made and recorded as such. That is, it was debited from the payer’s account and credited to the payee’s account.

In business, regularly recording all cash disbursements is a crucial method of keeping tabs on business expenses.

Around the world, the word disbursement is used in a variety of contexts, from crediting student loan money to finalizing a withdrawal from a retirement account.

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