What is a Disbursement?


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A disbursement is the act of paying out or distributing funds. It’s a term commonly used in financial management, accounting, and banking to describe the payment of cash from a fund or account to settle expenses, invoices, salaries, dividends, or any kind of financial obligation.

Disbursements can come in various forms, including cash payments, electronic funds transfers, checks, or payment via credit card. They can be scheduled for regular intervals, like employee salaries or lease payments, or they might occur sporadically as needs arise, such as paying for a repair or settling an invoice from a supplier.

Managing disbursements effectively is crucial for businesses and organizations of all sizes. It’s a key aspect of cash flow management, helping to ensure that funds are available when needed to meet all financial obligations. It’s also important for maintaining accurate financial records, as every disbursement should be recorded correctly in the organization’s accounting system.

Example of a Disbursement

Let’s consider a fictional company named “Sunrise Bakery.”

Sunrise Bakery has various expenses that it needs to pay on a regular basis. These expenses might include:

  • Salary Payments: Every month, Sunrise Bakery needs to pay its employees. The company disburses these payments, often via direct deposit into the employees’ bank accounts.
  • Utility Bills: Each month, Sunrise Bakery must pay for utilities like water, electricity, and internet. The company makes these disbursements either electronically or by sending a check to the utility companies.
  • Supplier Payments: Sunrise Bakery purchases ingredients from various suppliers. When the suppliers send invoices for these ingredients, the company disburses funds to pay these invoices.
  • Rent Payment: If Sunrise Bakery operates out of a leased building, it would make a disbursement to the landlord for the monthly rent.
  • Tax Payments: At certain times of the year, Sunrise Bakery would need to disburse funds to the government for tax obligations.

Each of these disbursements needs to be carefully managed and recorded. Proper recording is crucial for accurate financial accounting, and effective management of disbursements helps ensure that Sunrise Bakery always has enough cash on hand to meet its financial obligations.

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