Disbursement

Definition

Disbursement refers to the act of paying out or expending money from a fund or account. It is a critical concept in the context of petty cash funds and the associated journal entries required to manage and maintain these funds.

5 Must Know Facts For Your Next Test

1. Disbursements from a petty cash fund are typically made for small, miscellaneous expenses such as office supplies, postage, or minor transportation costs.
2. Proper documentation, such as receipts, is required for each disbursement from the petty cash fund to ensure accurate record-keeping and accountability.
3. The total amount of disbursements from the petty cash fund must be periodically reimbursed to restore the fund to its original balance, maintaining the imprest system.
4. Disbursements from the petty cash fund are recorded as debits to various expense accounts, depending on the nature of the expenditure.
5. Effective management of the petty cash fund, including timely reimbursement of disbursements, is crucial to maintain accurate financial records and control over cash.

Review Questions

• Explain the purpose and use of a petty cash fund, and how disbursements from the fund are recorded.
  • The purpose of a petty cash fund is to provide a small amount of readily available cash to pay for minor, incidental expenses that are too small to justify the effort and cost of writing a check. Disbursements from the petty cash fund are recorded as debits to the appropriate expense accounts, such as office supplies, postage, or transportation. These disbursements are then periodically reimbursed by crediting the petty cash account and debiting the corresponding expense accounts to restore the fund to its original balance, maintaining the imprest system.
• Describe the process of preparing petty cash journal entries, including the steps involved in replenishing the petty cash fund.
  • To prepare petty cash journal entries, the first step is to record each disbursement from the petty cash fund as a debit to the appropriate expense account and a credit to the petty cash account. When the petty cash fund needs to be replenished, the total amount of disbursements is calculated, and a journal entry is made to debit the various expense accounts and credit the cash account to restore the petty cash fund to its original balance. This reimbursement process ensures that the petty cash fund maintains a constant, predetermined amount, in accordance with the imprest system.
• Analyze the importance of proper documentation and control over the petty cash fund, and how it relates to the concept of disbursements.
  • Proper documentation and control over the petty cash fund are crucial to ensure the accuracy and accountability of disbursements. Each disbursement from the petty cash fund must be supported by appropriate documentation, such as receipts, to justify the expense and maintain a clear audit trail. This documentation is essential for the periodic reimbursement of the fund, as well as for financial reporting and auditing purposes. Furthermore, the imprest system of maintaining a constant petty cash balance helps to prevent misuse or abuse of the fund, as any disbursements must be promptly reimbursed to restore the original amount. By exercising strong control and documentation over the petty cash fund, organizations can effectively manage disbursements and maintain the integrity of their financial records.

Related terms

Petty Cash Fund:

A petty cash fund is a small amount of cash on hand used to pay for minor, incidental expenses that are too small to justify the effort and cost of writing a check.

Reimbursement:

Reimbursement is the process of replenishing the petty cash fund by recording the total amount of disbursements and replenishing the fund to its original balance.

Imprest System:

The imprest system is a method of managing a petty cash fund where the fund is maintained at a constant balance, and any disbursements are reimbursed to restore the fund to its original amount.