What are Capital Asset Pricing Models (CAPM)?
A capital asset pricing model, known as CAPM, outlines the relationship between systematic risk and the expected return of the asset, explaining …
A disbursement is the act of paying out money, typically in relation to business or financial transactions. It involves the distribution of funds from one entity to another, often as part of routine operations, loan agreements, or legal settlements. For companies, disbursements are a normal part of business and include payments to suppliers, employees, and service providers. For individuals, disbursements can include payments made for rent, utilities, or settling debts.
In finance and accounting, a disbursement is a payout or payment of funds, usually made by a business to cover expenses, purchase goods or services, or settle debts. These payments are documented in the company’s financial records as they affect cash flow and are essential to managing liquidity. Disbursements are crucial to financial management and operational efficiency because they ensure that obligations are met and relationships with suppliers, employees, and service providers are maintained.
Disbursements occur across various sectors and industries and involve different types of transactions. Let’s go over some of the most common examples of disbursements in real-world scenarios:
Employee payroll is one of the most common forms of disbursement in any business. Businesses need to compensate their employees for the work they do, typically on a weekly, bi-weekly, or monthly basis. Payroll disbursements include not just the basic salary but also any bonuses, benefits, and allowances that the employees are entitled to. These payments are often made through direct deposit into employees’ bank accounts.
Example: A company disburses $150,000 in monthly payroll for 100 employees, covering their wages, benefits, and tax withholdings.
Businesses must make regular payments to their suppliers for goods and services they procure. These payments are essential for maintaining a steady supply chain and ensuring the business can operate smoothly. Supplier disbursements can include payments for raw materials, office supplies, and outsourced services.
Example: A restaurant makes monthly disbursements to food suppliers and beverage companies to replenish its stock of ingredients and drinks.
When a borrower takes out a loan, the lender disburses the loan amount to the borrower either in a lump sum or installments. Loan disbursements can be used for various purposes, such as funding a business venture, purchasing a home, or consolidating debt.
Example: A bank disburses a $500,000 mortgage to a borrower to facilitate the purchase of a new home. The borrower repays the loan with interest over a set period.
In legal cases, disbursements are often made as part of settlements, where one party agrees to pay a certain sum to resolve a dispute or lawsuit. Legal disbursements can also include payments for legal fees, court costs, and damages awarded by the court.
Example: A company agrees to pay $2 million to settle a lawsuit with a former employee over wrongful termination claims.
Businesses and individuals alike must make regular tax payments to the government. These tax disbursements can include income tax, property tax, sales tax, and other obligations. Timely payment of taxes is important to avoid penalties and interest charges.
Example: A small business disburses $30,000 in quarterly tax payments to cover federal, state, and local taxes.
Governments often make disbursements for social welfare programs, such as unemployment benefits, pensions, and stimulus payments. These disbursements support individuals who qualify for government assistance based on various criteria.
Example: During an economic downturn, the government disburses stimulus checks to citizens to help support the economy and provide financial relief.
When a business invests in long-term assets, such as machinery, buildings, or technology, these expenditures are known as capital disbursements. These payments are made to acquire assets that are expected to generate value over time.
Example: A manufacturing company disburses $1 million to purchase new machinery for its production facility, with the expectation that this investment will improve efficiency and output.
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