Cash disbursement definition
/What is a Cash Disbursement?
A cash disbursement is the outflow of cash paid in exchange for the provision of goods or services. A cash disbursement can also be made to refund a customer , which is recorded as a reduction of sales . Yet another type of cash disbursement is a dividend payment, which is recorded as a reduction in corporate equity .
A cash disbursement can be made with bills or coins, a check , or an electronic funds transfer. If a payment is made with a check, there is typically a delay of a few days before the funds are withdrawn from the company's checking account, due to the impact of mail float and processing float .
How are Cash Disbursements Made?
Cash disbursements are usually made through the accounts payable system, but funds can also be disbursed through the payroll system and through petty cash . Payments made through the payroll system are intended solely for compensation disbursements to employees. Payments made through the petty cash system are intended only for very small disbursement amounts; larger disbursements must be made through the accounts payable system.
Examples of Cash Disbursements
Here are several examples of cash disbursements:
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Payments to suppliers . Paying a vendor for raw materials or inventory, using a check or electronic transfer.
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Utility payments . Disbursing cash to cover electricity, water, internet, and other utility bills.
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Employee compensation . Payroll disbursements made to employees.
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Loan payments . Making monthly payments to settle principal and interest on business loans.
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Rent payments . Paying rent for office or warehouse space.
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Equipment purchases . Buying machinery or computers and paying the vendor in cash or electronically.
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Tax payments . Remitting corporate taxes, sales taxes, or payroll taxes to government authorities.
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Dividend payments . Issuing cash dividends to shareholders.
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Travel reimbursements . Paying for office supplies, minor repairs, or petty cash expenses.
Cash Disbursement FAQs
What is the difference between a cash disbursement and an expense?
A cash disbursement is any payment of cash, including purchases of assets, debt repayments, dividends, and expenses. An expense is a cost recognized in determining profit for a period. A cash payment may occur before, during, or after the related expense is recorded under accrual accounting.
When should a cash disbursement be classified as an investing or financing cash flow?
A cash disbursement is an investing cash flow when it purchases long-term assets, businesses, or investments. It is a financing cash flow when it repays debt principal, repurchases shares, or distributes dividends to owners. Payments arising from normal revenue-producing activities are generally classified as operating cash flows instead.
