A disbursement is a money payment made to an individual or entity from public or private funds. This encompasses various payments, including those by businesses, educational institutions, insurance companies, and government bodies. It can involve delivering loans to borrowers, payments to third parties for clients, or distributing dividends to shareholders.

Key Takeaways

• A disbursement signifies the cash outflow from a fund.
• In business accounting, it is documented in the general ledger.
• It offers a clear record of a business's cash expenditures.
• Shareholder dividends are classified as disbursements.
• Student loans paid to educational bodies also constitute disbursements.

Examples of Disbursements

• Loans: This occurs when loan amounts are credited to the borrower, reflecting as a debit from the lender’s account.
• Tuition: For student loans, disbursements are made to institutions on students’ behalf. Universities may also disburse grant money directly to students.
• Insurance Claims: Post-evaluation, insurance companies disburse funds for repairs, as per policy terms.
• Business Operations: Vital for cash flow and expenses, excessive disbursements versus revenues can indicate financial risks.
• Retirement Account Withdrawal: Withdrawals are recorded as disbursements, reducing the account balance.
• Controlled Disbursement: This cash flow service lets corporate clients reschedule payments to optimize interest earnings by delaying debits.
• Third-Party Payments: In legal contexts, disbursements pay for court fees or private investigation services made by attorneys on clients’ behalf.
• Remote or Delayed Disbursement: Uses checks from remote banks to delay debits; less common today due to electronic transfers.

Accounting for Disbursements

Disbursements recorded over periods like quarters or years involve posting each transaction to ledgers, detailing date, payee, amount, and purpose. These affect the overall cash balance, differing from profit/loss figures. In accrual accounting, expenses and income are recorded when incurred or earned, not necessarily when paid or received. The ledger contents vary; for example, a retailer logs inventory or salaries, whereas a manufacturer focuses on raw materials and production costs.

Disbursement vs. Drawdown

A disbursement is the payment itself, whereas a drawdown is the fund reduction due to disbursements, like a retiree withdrawing funds from a retirement account resulting in a decreased balance.

Can a Loan Disbursement Be Negative?

Yes, it can be positive (crediting an account) or negative (debiting) if financial aid funds are overextended and later retracted.

What Is the Difference Between a Disbursement and a Payment?

A disbursement is a finalized payment type from a fund, properly logged as debit for the payer and credit for the payee.

What Is a Disbursement Fee?

This fee covers payments a vendor makes on a customer’s behalf, such as FedEx covering duty and tax fees, then adding a fee to the customer's bill.

The Bottom Line

A disbursement is a financial allocation from a fund for business expenses, dividends, etc. Businesses must maintain accurate disbursement records to manage cash flow and expenditures, ensuring transparency and accountability.