The term "disbursement" is often used when discussing a company's expenses or in connection with paying reimbursements for a service. However, disbursements and common business expenses are not the same thing, even though a disbursement can be considered a business expense. It is important to know the difference between disbursements and expenses when discussing a company's finances.
An expense is funding spent on operating a business, either by paying salaries for employees, purchasing new equipment or supplies or spending money on marketing the business with the goal of increasing profits. A disbursement refers to the money paid on behalf of a client or person by a company or agent. This is a type of expense to the person paying the sum on behalf of another. In other words, a disbursement is considered a type of expense, but an expense is not always classified as a disbursement.
Disbursements and Expenses in Practice
Disbursements include payments made on behalf of a person who will later get the money back as part of an agreement with the client. However, disbursements also include purchases of goods and services that are tax-deductible, such as medical purchases, in which the purchaser gets portions of the money back when filing income taxes. This differs from general business expenses. Expenses, on the other hand, refer to all the money a company spends on office supplies, hiring employees and marketing products. Not all expenses are deductible.
Expenses and Disbursements in Financial Reports
Another difference between expenses and disbursement is the way they are presented in annual financial reports. Expenses are often broken down in great detail using categories, so executives and investors can see how the business spends its money. This means disbursements often have their own category, if payments are still outstanding.
Disbursements vs. Reimbursements
Disbursements are not the same as reimbursement. The term reimbursement refers to the payment refunded for the original disbursement. If a company pays a disbursement on behalf of a client, the reimbursement is the payment the client pays to the company to refund the original payment. A reimbursement may be subject to discounts or interest fees, depending on the agreement in place.