disbursement

Disbursement is the act of paying out funds from an organization to settle obligations or distribute money to recipients. In accounting and finance, a disbursement refers to the actual cash outflow and is the payment event, whereas expenditures may be recognized when goods or services are incurred or ordered. Disbursements can occur in various forms, including cash, checks, electronic funds transfers (such as ACH and wire transfers), and debit card payments.

In government, corporate, and nonprofit contexts, disbursements are the final phase of the spending process, following budget authorization, procurement, and contract execution. They are governed by internal controls, compliance requirements, and regular reporting. A disbursement cycle typically includes invoice verification, payment approval, funding of the liability, execution of the payment, and reconciliation with bank statements.

Controls and risk management are central to disbursement processes. Key controls include authorization, segregation of duties, vendor validation, prevention of duplicate payments, and timely reconciliation. Risks include fraud, misposting, late or missing payments, and cash management inefficiencies. Automation and electronic payment systems can improve accuracy, speed, and traceability, while also facilitating audit trails.

Accounting treatment generally records a disbursement as a reduction of cash and settlement of a liability or expense. For example, when a payment is made to satisfy an accounts payable, the entry typically debits accounts payable and credits cash. If the original recognition was an accrued liability, payment reduces both cash and the liability.

In sum, disbursement is a fundamental cash-out process with implications for liquidity, controls, and financial reporting.