Cash Advances and Disbursement Concepts

12 Questions

What does the term 'Disbursement Account' refer to in the context of the Federal Reserve?

Checking account for electronic fund transfers

What is one of the steps involved in disbursement processes?

Verifying eligibility

How are funds disbursed to grantees by state governments?

After submitting detailed invoices

In what scenarios can disbursement occur?

After verifying eligibility and compliance

What is the main purpose of a Disbursement Account according to the text?

To process and settle electronic fund transfers

How should grantees use the funds received through disbursement?

Only for the purpose stated in the grant agreement

What is the main difference between a cash advance and a disbursement?

Cash advances provide cash before its expected receipt, while disbursements refer to paying out money.

In what context might a tenant receive a cash advance according to the text?

As part of a security deposit against future rent payments.

Why do cash advances typically carry high fees and interest rates?

Due to their short repayment periods.

When can early deliveries of materials or labor be considered cash advances?

When they are expected payments but not received on time.

Which of the following is NOT characteristic of cash advances mentioned in the text?

Are always secured with collateral.

What is the primary meaning of a disbursement based on the information provided?

The act of paying out money or resources.

Study Notes

Cash Advances and Disbursement

In various contexts, the terms "cash advance" and "disbursement" refer to distinct concepts. A cash advance typically implies the provision of cash before its expected receipt. On the other hand, a disbursement refers to the payment of money or resources. Let's delve deeper into each concept.

Cash Advances

A cash advance usually indicates a short-term loan provided to an individual or business. These loans are often used to meet immediate financial needs, such as paying bills or covering unexpected expenses. Typically, cash advances carry high fees and interest rates due to their short repayment periods. They can be secured or unsecured, depending on whether they require collateral or not. For instance, in a rental property contract, a tenant may receive a cash advance against future rent payments as part of the security deposit.

Cash advances can also occur within broader financing arrangements. In some cases, parties agree to make certain kinds of payments at specified times. If these payments are not received when expected, they can be considered cash advances. For example, in a construction project, early deliveries of materials or labor could give rise to cash advances under the terms of a contract. In such situations, the party receiving the advance becomes obligated to pay back the amount advanced on agreed upon dates.

Disbursement

The term "disbursement" generally refers to the act of paying out money or resources. It is a broad term that can apply to various scenarios, including salary payments, government grants, or dividends. When funds are disbursed, they are released and become available for recipients to use. Disbursement processes involve several steps, such as verifying eligibility, tracking spending, and ensuring compliance with rules and regulations.

For instance, in the context of the Federal Reserve, the term "Disbursement Account" refers to checking accounts opened at banks that participate in its automated clearing house system for making and receiving electronic fund transfers. It allows the Fed to process and settle certain types of transactions on behalf of its customers.

Moreover, in the context of state governments, disbursement can involve making payments to grantees following specific guidelines. For example, a grantee might receive a disbursement after submitting invoices detailing their expenditures. Then, the grantee must use the funds only for the purpose stated in the grant agreement.