What is disbursement?
A disbursement refers to the act of paying out funds from a business, organization, or individual. It confines the process of releasing money to fulfill financial obligations, such as expenses, bills, salaries, or any other monetary commitments. In the context of financial management, disbursements are a crucial aspect of maintaining accurate records and managing cash flow. When tracking disbursements, businesses document the details of each payment, including the recipient, purpose, date, and amount. This meticulous record-keeping aids in financial transparency, budgeting, and maintaining a clear overview of the organization's financial health.
A disbursement takes the form of a payment made by a company in cash or its equivalent within a specified period, which could be a quarter or a year. A diligent bookkeeper diligently logs each of these transactions and enters them into relevant ledgers, such as the cash disbursement journal and the general ledger.
For each disbursement entry, essential details are included: the date of the transaction, the name of the payee, the debited or credited amount, the method of payment, and the purpose behind the payment. This process ensures that the overall cash balance of the business accurately reflects the impact of the disbursement.
Disbursement journals and ledgers function as a comprehensive record of the financial outflow from the business. These records may vary from the actual profit or loss of the company due to differences in accounting methods. For example, a business using the accrual method of accounting recognizes expenses when they are incurred, not strictly when they are paid; similarly, income is reported when it's earned, not when received