Drawdown vs. Disbursement:

Drawdown vs. Disbursement

The terms withdrawal and disbursement have many meanings in the world of finance, although they are all different things. Withdrawals are typically associated with withdrawing funds from a retirement account, a bank loan, or money deposited into an individual account. Disbursements refer to cash outflows, dividend payments, investment account purchases, or cash expenditures.

key takeaways

  • Withdrawal and disbursement drafts may look the same, but they are too different actions in the world of finance.
  • Disbursements often refer to dividend payments or cash outflows.
  • Drafts are often associated with retirement accounts and bank loans.
  • Both terms have numerous meanings in the financial industry.
  • In many ways, drawdown is the magnitude of an asset’s price decline between its peak and trough, two of the five stages of the economy’s business cycle.

drawn

A retirement account typically has a “withdrawal percentage” that represents the portion of the total account balance accepted by a pensioner each year. Typically, a rolling period takes a maximum to minimum decline for an investment, trading account, or fund, and is often quoted as a percentage between the peak and the tank that follows it.

An arrangement loan is sometimes called an arrangement facility, and this makes it easier for the borrower to obtain additional credit, as is often the case with flexible mortgage accounts. In this sense, the drawdown is the magnitude of the reduction in the price of an asset between its peak and its minimum. For example, if the price of oil fell from $100 to $75 per barrel, your reduction would be 25%.

When we look at the price cut in share prices needed to offset the drawdown, drawdowns can be dangerous for investors. For example, a 1% stock loss only requires a 1.01% gain to return to its previous peak, but a 20% return with a 25% return is required to reach the previous peak.

During the global recession of 2008-2009, a 50% reduction was common; these had to see huge 100% surges to regain previous peaks.

disbursements

  • Any cash payment, voucher, check, or disbursement is considered a disbursement. Technically speaking, disbursements can refer to financial assistance or professional financial services. Financial accountants keep cash disbursement journals to record all of their business expenses. These journals identify various destinations for potential cash outflows and tax write-offs. The accounting entries for disbursements usually indicate the following: Date
  • Beneficiary Name
  • Debit amount or creditors
  • Way to pay
  • payment purpose
  • Effect on the company’s total cash balance

In particular, some companies use “remote disbursements” to navigate the Federal Reserve’s check-clearing system. If executed well, remote disbursements allow a company to earn additional interest on its deposit accounts. Disbursements may differ from actual gains or losses; they measure the money flowing out of businesses. Businesses that use the accrual method to record or report expenses as they occur, but not necessarily when they are paid.

The accrual method also reports income when it is earned, not when it is received. In this way, managers use the ledgers to find out how much money has been spent, tracking the use of cash to determine their companies’ expense ratios.

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By Cary Grant

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