What is 'Disbursement'

Disbursement is the act of paying out or disbursing money. Examples of disbursements include money paid out to run a business, cash expenditures, dividend payments, the amounts that a lawyer might have to pay out on a person's behalf in connection with a transaction, etc. Disbursing money is part of cash flow. If cash flow is negative, meaning that disbursements are higher than revenues, it can be an early warning of potential insolvency.

BREAKING DOWN 'Disbursement'

A disbursement is the actual delivery of funds from a bank account or other funds. It is payment made by a company in cash or cash equivalents during a set time period, such as a quarter or year. A bookkeeper records the transactions and posts them to ledgers, such as the general ledger and accounts payable ledger. Each entry includes the date, payee name, amount debited or credited, payment method, purpose of the payment, and its effect on the firm's overall cash balance. Common accounts in the ledger depend on the business. For example, a retailer has payments for inventory, accounts payable, and salaries. A manufacturer has transactions for raw materials and production costs.

Disbursements measure the money flowing out of a business and may differ from actual profit or loss. For example, a company using the accrual method of accounting reports expenses when they occur, not necessarily when they are paid, and reports income when earned, not received. Managers use the ledgers to determine how much cash is disbursed, and they track its use to determine spending ratios. For example, management can see how much cash is spent on inventory compared to other bills. Since the ledger records the check numbers of the checks issued, managers can determine whether checks are missing or written incorrectly. If earnings do not come as needed to cover expenses, a profit is still reported while cash is running low, which can lead to insolvency.

Examples of Disbursements

An example of a disbursement is when a company's attorney makes payments to third parties for court or medical fees, private investigators, couriers or expert reports while preparing a case. Disbursements can become costly in cases involving expert reports for establishing evidence, especially in personal injury cases when serious injuries have long-term effects and must be evaluated immediately. These reports enable a more accurate determination of the client’s losses and create an understanding of claimed damages. The attorney notifies the client and the insurance company before incurring high disbursement costs, and the client must reimburse the attorney.

A student loan disbursement is the paying out of loan proceeds to a borrower, which is the student. Schools and loan servicers notify students of the disbursements in writing, including the amount of the loan and its expected disbursement date. They then disburse Federal and private student loans, typically two or more times during the academic year. The student receives credit to his account to pay tuition and fees, and receives the balance by check, direct deposit, or another method agreed on.

A loan disbursement can be positive or negative. While a positive disbursement results in a credit to an account, a negative disbursement results in an account debit. Examples of a negative disbursement is evident when funds are withdrawn from a student's account after s/he was overpaid funds for financial aid.

 

RELATED TERMS
  1. Cash Disbursement Journal

    A cash disbursement journal is a record kept by accountants of ...
  2. Cash Concentration and Disbursement ...

    Cash concentration and disbursement (CCD) is a type of electronic ...
  3. General Ledger

    A general ledger represents the formal ledger for a company's ...
  4. Accounts Payable Subsidiary Ledger

    An accounts payable subsidiary ledger shows the transaction history ...
  5. Cash Management

    Cash management is the corporate process of collecting, managing ...
  6. Asset Ledger

    The asset ledger is the part of a company's accounting records ...
Related Articles
  1. Personal Finance

    An Introduction To Perkins Loans

    Check out the eligibility and repayment options, and how you can get this loan forgiven.
  2. Investing

    What's a General Ledger?

    As the heart of the double-entry accounting system, the general ledger is the record of a company's entire financial transaction history. The left side of the general ledger is for debits: assets, ...
  3. Personal Finance

    A Beginner's Guide to Getting Student Loans

    Follow these 5 steps and you'll be well on your way to knowing which loans to go after – and which college really offers you the best deal.
  4. IPF - Mortgage

    The Smartest Way to Tap Your Home Equity

    Using your home as a source of funds can be a smart choice in some situations. Just be sure to run the numbers carefully.
  5. Personal Finance

    The Best Ways to Eliminate Student Loans

    You went to college and got the degree. Now it’s a matter of paying off that debt. Here's how.
  6. Personal Finance

    Benefits of Federal Direct Loans

    Federal Direct Loans are the most popular federal student loans. This list of benefits will explain why.
  7. Personal Finance

    Shocking Spike in Federal Student Loan Defaults

    The cost of college keeps going up and graduates are finding it tough to land good jobs.
  8. Financial Advisor

    Federal Direct Loans

    These are the most popular type of federal student loan. Read this guide to the types you can get, how much you can borrow and repayment options.
  9. Personal Finance

    Avoid These 5 Student Loan Repayment Mistakes

    Avoid these mistakes to lessen the stress of student loans and manage them effectively.
  10. Personal Finance

    Crush Your Student Loan Debt With These Tips

    Conquering high-interest-rate loans first and paying extra can help you crush your student loans.
RELATED FAQS
  1. Do Sallie Mae loans go directly to your school?

    Learn the types of financial aid and student loans Sallie Mae offers college students, including when funds are disbursed ... Read Answer >>
Trading Center