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WHAT IS CASH DISBURSEMENT IN ACCOUNTING?

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Every company needs an efficient, accurate way to track cash disbursements — a
vital part of understanding cash flow tracking. Tracking cash flow is itself an
incredibly important part of accounting. It goes beyond A/R and A/P and paints a
vivid, crucial picture of your business health.

Yet managing your cash flow and tracking cash disbursements can be a monumental
challenge. A shocking 61% of business leaders say they lose sleep over cash flow
struggles. Poor cash flow leads to missed business opportunities, lost revenue,
damaged relationships with employees and vendors, and can even lead to closing
shop.

Download Now: Free Accounting on Salesforce Guide →

On the upside, proper cash flow tracking can help you tap into new business,
take advantage of changing market situations, create new offerings, and grow
your company. So — let’s dig into cash disbursements. You’ll see the meaning of
cash disbursement, how to do one, how to automate them, and how the right
accounting software can help.

 


WHAT IS A CASH DISBURSEMENT?

In accounting, a cash disbursement is a payment made by one party to another.
Also called cash payments or disbursements, they can be made by check, e-check,
Automated Clearing House (ACH), digital payment, and all formats of payments
recorded with an immediate deduction.

You can use cash disbursements to purchase inventory, pay for office supplies,
make business loan payments, pay dividends, cover accounts payables and
salaries, and make any other kind of payout that’s not handled with a credit
account or credit card.

Funds that are relocated by an intermediary, like a lawyer’s payment to another
party on your behalf, can also be considered a disbursement.


HOW TO DO A CASH DISBURSEMENT

To perform a cash disbursement, an employee issues a check, pays cash, or
initiates an ACH or other funds transfer. That cash (or cash equivalent) payout
gets recorded in a cash disbursement journal. The journal entry records:

 * Disbursement date 
 * Name of the payee 
 * Funds disbursement or the amount debited and credited 
 * Disbursement/payment method 
 * The purpose of the payment

In the cash disbursement journal, a company itemizes all the financial
expenditures it makes with cash (or cash equivalents). The cash disbursement
journal helps create the organization’s general leger.


WHY CASH DISBURSEMENTS ARE IMPORTANT FOR BUSINESSES

Cash disbursements are a vital part of cash flow tracking. If your company
records more disbursals than revenues, that’s an early warning sign that your
business is in financial trouble.

Disbursements also flag your different payment methods and shed light on
disbursed vs undisbursed funds. This paints a clearer picture of your cash flow
status,. For small businesses, operating costs often need to be kept tight. If
funds aren’t monitored closely, the company may quickly become insolvent.


CASH DISBURSEMENT EXAMPLE:

Let’s say a payee invoices for an entire year at $1,600, with equal payment
disbursements due quarterly. You’ll need to disburse a lump sum of $400 every
third month. You’ll then enter these four cash disbursements into a cash
disbursement journal. You’ll also record other disbursements in that journal,
including loan disbursements, employee salary payments, vendor payments, and all
other payments made with cash and cash equivalents. At the end of the year,
you’ll use the total in your cash disbursements journal to estimate your
spending during the next year.

Next, let’s take a look at the two different types of disbursements.

 


TYPES OF CASH DISBURSEMENTS

Any money paid in cash (or equivalents) is a cash disbursement. So — there are
as many types of cash disbursements as there are different kinds of payments.
Here are several cash disbursement examples.

 1. Customer refunds: A refund made to a customer is a disbursement of funds,
    recorded as a reduction of sales.
 2. Dividend payments: These cash disbursements are recorded as a reduction in
    corporate equity.
 3. Student loan payment: This kind of disbursement happens when a student loan
    payment is made to a student or borrower. The borrower is informed in
    writing from the bank and the school, notifying them of both the disbursed
    amount and the disbursement date.
 4. Will disbursement: The distribution of assets from a person’s estate is
    another type of disbursement. A lawyer or personal representative for the
    estate disburses funds according to a will.
 5. Business loan payment: Any business loan payment is a cash disbursement.
 6. Rent on physical locations: Rent payments made with cash, checks, or other
    equivalents are recorded as cash disbursements.
 7. Employee salary payments: Payroll payments to employees are cash
    disbursements.
 8. Purchasing equipment: Buying or making payments on business equipment is a
    disbursement that counts against unadjusted revenue.

 


OTHER KINDS OF DISBURSEMENTS

Disbursements can be controlled, delayed, positive, or negative. Here’s a little
more info on the other disbursement types you might encounter.

NEGATIVE DISBURSEMENTS

Disbursements can be both positive and negative. A positive disbursement happens
when you create a credit in an account. Negative disbursement occurs when
there’s a debit. For example, a business might overpay for a service, then
receive a reimbursement of funds. That refund is recorded as a negative
disbursement.

CONTROLLED DISBURSEMENTS

A controlled disbursement is a cash flow management service that banks provide
to corporate clients. Controlled disbursements let businesses review and
schedule payments. Controlled disbursements let companies maximize the interest
they generate on their accounts by delaying payments.

DELAYED DISBURSEMENTS

Closely related to controlled disbursements, delayed disbursements keep funds
from a disbursement check in an account as long as possible. Historically,
checks could only be cashed when the issuing bank received the physical piece of
paper. The digital world has eliminated this delay, but many companies still
choose to use delayed disbursements to support their cash flow.

NON-CASH EXPENSES

Companies record noncash expenses in their income statement, but there’s no cash
transaction attached. Depreciation is one example. When a business enters
depreciation into the income statement, that entry lowers the net profit without
a cash disbursement.

 


WHAT IS A DRAWDOWN?

A drawdown is a measurement of a decline in the value of an account resulting
from a disbursement. When you’ve actioned a disbursement, the consequence of
that transaction is a drawdown. The term “drawdown” is mostly used to discuss
disbursement from a large account, like a retirement fund.


AUTOMATING CASH DISBURSEMENTS WITH ACCOUNTING SOFTWARE

When you automate cash disbursements, you free up valuable time for your
accounting team. An automated accounting system like Accounting Seed makes it
easy to put your cash disbursements on autopilot.

Accounting Seed connects with applications such as ACH Connect — and has
partners like Clear Cloud One that can automate cash disbursements for your
business. The ACH Connect Accounting Seed Extension automates payments and
subsequent Cash Receipts or Disbursements when Billing and Payable Records come
due. Click here to learn more about the ACH Connect Accounting Seed Extension.


CREATING A MANUAL CASH DISBURSEMENT WITH ACCOUNTING SEED

With Accounting Seed’s manual cash disbursement feature, you can make single and
batch payments via Salesforce. Accounting Seed’s cloud-based software allows for
easy, automated disbursement transactions and smooth disbursement flows.

Accounting Seed automatically records disbursements in your company’s
disbursement journal for a simple and efficient transaction recording and
accounting process.

To create a cash disbursement with Salesforce and Accounting Seed, see our guide
to creating cash disbursements. In it, you’ll find steps to:

 * Create a Manual Cash Disbursement
 * Create a Batch Payment Payable
 * Create a Single or Partial Payment Payable
 * Apply a Cash Disbursement to a Payable

Plus a guide to Checkbook.io Distribution Types

 


RELATED ACCOUNTING TASKS

Cash disbursements aren’t the only repetitive accounting tasks you can automate.
Accounting Seed users can also create custom management reports with custom rows
and columns detailing cash disbursements by batch. You can also create several
other types of useful reports to bring clarity and insight to your business. To
learn more about custom reports with Accounting Seed, see our guide to
management reports and dashboards.


LEARN MORE WITH AN ACCOUNTING SEED CONSULTATION

Making cash disbursements with Accounting Seed is easy, but if you do need help,
we’re ready with a free consultation. Book a session with one of our helpful and
knowledgeable consultants today to learn more.

A native Salesforce accounting app, Accounting Seed, provides a full 360-degree
view of your business’ performance to help you and your team make the best
decisions possible. Not on Salesforce? Our software can be customized to work
with any system you have through a reliable connection.

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