Definition: A cash disbursement is an amount of money that flows out of the company’s accounts or petty cash boxes. It is an expenditure that can be classified differently depending on the nature of the disbursement.
What Does Cash Disbursement Mean?
There are two different aspects of an expense from accounting perspective. On one side, there is the accounting record, which describes the nature of the operation and on the other side, there is the actual payment of the transaction.
From a financial standpoint, these events doesn’t have to occur necessarily at the same time, since companies can acquired debt (which indicates that the payment will be made in the future, and not at the moment of the purchase) or, the company can sell through credit (which indicates that the money involved in the sale will be delivered in the future too). In both scenarios, the actual cash is spent or received in the future.
In this regard, a cash disbursement is the operation that involves an actual money outflow either from the company’s cash (petty boxes, bank accounts) or from cash equivalents like short term investments. These cash disbursement are normally issued following an organized schedule to make sure the company is properly funded to meet all its financial commitments. The Finance Manager is normally the person in charge of planning, organizing and executing these disbursements in a timely manner.
Relentless Collectors Co. are an account receivables collection company that specializes in the health care industry. They serve clinics and independent practices helping them to collect debts from their overdue clients. Relentless’ clients are normally physicians that charge some of their commercial clients through credit.
After a period of 60 days has passed, the debt is passed on to Relentless Collectors and their job is to contact these companies to recover the amount owed. For these companies, the expense is already recorded, since it occurred at the time the patient received the medical attention, but the cash disbursement required to fulfill the commitment hasn’t been issued yet.