Cash disbursements, or payments from one party to another, are made every day by small businesses to pay for services or goods. Accurately tracking cash disbursements is an essential part of healthy financial management for small businesses, especially in your accounting.
To help you with this process, this article will provide you with a definition of this payment type, examples, and how to keep tabs on disbursements.
What is cash disbursement?
A cash disbursement is any payment made from one business or individual to another in exchange for goods or services. While it has the word “cash” in it, this phrase can be applied to any method of payment used in your business, whether that be physical currency, a check, an ACH payment, or a different form of digital payment altogether.
As a business owner, you’re handling cash disbursements all the time—when you pay your bills, purchase materials, receive orders from customers, pay dividends, or even cut your employees’ paychecks.
Cash disbursement examples
Here are some examples of cash disbursements that you’re likely to encounter as a small business owner:
- Dividend payment: Redistributing a portion of your profits among other shareholders is a routine payment for most business owners. When you distribute this money from your business accounts to the individual accounts of those who are involved in your company, it’s considered a cash disbursement.
- Payment of a business loan: Have you received a loan for your business to expand, grow, or hold steady during a particularly tumultuous moment in the history of your company? If so, each and every payment you’ve made on that loan was a cash disbursement.
- Paying employee salaries: If you have staff, then you’re also routinely running payroll. Whether you pay weekly, bi-weekly, or monthly, each time you do payroll, you’re disbursing money from your business account to another individual’s account.
- Purchasing inventory and office supplies: Every business, regardless of its scale or industry, needs supplies to run smoothly. These could be manufacturing materials, office supplies, or cleaning products to keep a storefront in tip-top shape. This is another routine and often overlooked example of cash disbursements.
- Refunding a customer for a returned product or refunded service: In the unfortunate event that a customer or client needs a refund, returning their money back to their account is a cash disbursement.
How to keep tabs on your cash disbursements
Many business owners find it helpful to keep a cash disbursement journal. This is essentially a record of your company’s accounts, noting each payment made, to whom it was paid, and how much was spent.
This may seem like extra work, but creating a record of each payment as soon as it is paid—even before it’s logged in the general ledger—ensures that you always have an accurate reflection of your cash flow. Not only is this a helpful tool for reconciliation, but in the event that you’re audited or something is missed elsewhere in your accounting practices, you’ll always have a comprehensive record to refer back to.
The bottom line
Small business accounting is no joke, but you’re likely better prepared than you think. Once you start making careful note of your expenditures, you’ll be able to avoid any hurdles that may come up down the road.
There are times in business when you reconcile your books, and things don’t add up. Occasionally, you need to verify payment before things have officially cleared. One great way to ensure you always have at least one complete record of your company’s outstanding payments is by maintaining a cash disbursement journal.