What it means
Every time a business pays someone, a cash disbursement takes place. It reduces the cash balance and is recorded in the accounting system.
The payment might be for a purchase, a salary, rent, a tax bill, a dividend or the repayment of a loan. The word is broader than a simple expense.
Some disbursements, such as paying a supplier for goods received last month, settle an earlier liability. Others, such as buying equipment or repaying a loan, are not expenses at all, because they involve assets or financing.
Control matters because money leaves the business at the moment of payment. Well-run companies require approval of invoices before payment, match them against purchase orders and goods received, and separate the duties of those who approve, those who pay and those who record.
These steps prevent fraud and mistakes. Disbursements also drive cash planning.
Treasury and finance teams forecast when payments will fall due, so they can ensure enough cash is available. Timing choices, such as paying a bill on its due date rather than early, can protect liquidity without harming supplier relationships.
Records of disbursements feed several reports. They go into the cash disbursements journal, the bank reconciliation and the cash flow statement.
Auditors often test them by tracing payments back to approved invoices and contracts. A final point is the distinction between the date a payment is approved and the date cash actually leaves.
A cheque may be written on the 30th but cleared by the bank on the 5th of the next month. For cash planning, the clearing date is what matters, while the books usually record the payment date.
In practice
Real-world examples
Example 1
A construction company pays $25,000 to a concrete supplier by bank transfer after matching the invoice to the delivery note. The payment is recorded as a cash disbursement on the transfer date. The supplier's balance in accounts payable falls by the same amount. The accounts team files the matched documents with the payment record so that an auditor can trace it later.
Example 2
A software start-up pays its 12 staff a total of $90,000 on the last working day of the month. The payroll run is a cash disbursement, even though the work was done earlier in the month. The finance team plans cash a week ahead to be sure funds are available. If funds were short, the owners would need to arrange a loan or delay other payments, because wages cannot normally be late.
Example 3
A family-owned hotel repays a bank loan instalment of $8,000, of which $2,000 is interest. The whole $8,000 is a cash disbursement. Only the interest portion is an expense in the profit and loss account. The finance team therefore labels each cash outflow by type in its records, so that the profit figures are not distorted.
Think of it
Cash disbursements are all the payments flowing out of your business-the outgoing money stream.
Formula
Calculation
Ending cash = Beginning cash + Cash receipts - Cash disbursements
Worked example: a business starts the month with $80,000 and receives $150,000 from customers. Its disbursements are payroll of $60,000, suppliers of $45,000, rent of $10,000 and tax of $15,000.
Step 1: Total disbursements = $60,000 + $45,000 + $10,000 + $15,000 = $130,000.
Step 2: Ending cash = $80,000 + $150,000 - $130,000 = $100,000.
The business ends the month with $100,000, because receipts exceeded disbursements by $20,000.Case study
Seen in the real world
Pinecrest Furniture is an illustrative, fictional manufacturer that paid supplier invoices as soon as they arrived. Its monthly cash disbursements were about $240,000, and the cash balance often dipped close to zero before customer payments came in. The finance manager mapped every payment against its due date.
She found that many suppliers offered 30-day terms, yet the company paid them within 10 days. By moving payments to the due dates, the company held an extra $160,000 on average, since 20 extra days on $240,000 a month is $240,000 x 20 / 30 = $160,000. It paid for this change with a simple payment calendar and no loss of goodwill.
The illustrative lesson is that disbursement timing is a lever for liquidity. Paying on time, and not early, keeps cash in the business without hurting suppliers. The company also introduced two-person approval for payments above $10,000, which has since stopped one attempted fraud involving a false supplier invoice.
Watch out
Common mistakes
- Treating all disbursements as expenses, when loan repayments, asset purchases and dividends are not expenses.
- Paying invoices without matching them to orders and deliveries, which allows duplicate or false payments.
- Forgetting to record cheques that have been issued but not yet cleared, which overstates the bank balance.
Questions
People also ask
Is a cash disbursement the same as an expense?
No, an expense is a cost of operating the business, while a disbursement is any cash payment, including those for assets, debt and dividends.
What is a disbursement voucher?
It is a document that records the details and approval of a payment before the cash leaves the business.
Do non-cash items count as disbursements?
No, items such as depreciation reduce profit but involve no payment, so they are not disbursements.
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