Definition
A disbursement is a payment made on behalf of a client by an intermediary, such as a solicitor or a banker. This intermediary acts as the agent, making payments for services or goods needed by the client. Once the agent settles these payments, the client is billed, and the agent claims reimbursement for the disbursements.
Examples
Example 1:
A solicitor is handling a client’s property transaction. To complete the transaction, the solicitor must pay various fees, including land registry fees and local authority search fees. These payments are made by the solicitor on behalf of the client and are later billed to the client as disbursements, which the solicitor claims back.
Example 2:
A bank acts on behalf of a corporate client to raise funds. During this process, the bank may need to cover various processing fees or legal costs associated with the transaction. These are paid upfront by the bank but are later billed to the corporate client as disbursements.
Frequently Asked Questions (FAQs)
What is the difference between a disbursement and an expense?
A disbursement refers specifically to payments made by an agent on behalf of a client, whereas an expense can be any cost incurred by an individual or organization. Disbursements must be reimbursed by the client to the agent, while expenses might be incurred directly by the person or entity responsible.
Is disbursement always related to legal and banking contexts?
No, disbursements can occur in various fields where an agent acts on behalf of a client. Although common in legal and banking contexts, other professionals, such as accountants, contractors, and estate agents, can also make disbursements.
How are disbursements recorded in accounting?
In accounting, disbursements are recorded as receivables when the agent makes the payment on behalf of the client and are moved to income once the client reimburses the amount.
Can disbursements include service fees?
Disbursements typically cover direct payments for goods or services required by the client, not the agent’s service fees. Agents usually bill their service fees separately from any disbursements.
Related Terms
Expense:
A broader term referring to any cost incurred by an entity or individual, not necessarily on behalf of another party.
Reimbursement:
The act of compensating someone for an expense they have incurred. In the context of disbursements, it refers to the client repaying the agent.
Receivables:
Amounts due to be received by an entity for the provision of goods or services. In accounting, disbursements are temporarily classified as receivables until reimbursement.
Online References
Suggested Books for Further Studies
- Financial Accounting and Reporting by Barry Elliott and Jamie Elliott
- Intermediate Accounting by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- Accounting for Non-Accountants by Wayne Label
Accounting Basics: “Disbursement” Fundamentals Quiz
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