What is the primary purpose of a cash budget in hospital finance?

• A. Forecasts profitability based on revenues and costs.
• B. Projects cash inflows and outflows to ensure liquidity.
• C. Measures long-term solvency.
• D. Tracks asset depreciation.

Answer: (B)

Cash budgets focus on managing cash flow to ensure liquidity. In hospital finance, the budget projects expected cash receipts from patient revenue and other sources and pairs them with anticipated cash outlays for payroll, supplies, rent, debt service, and capital spending. The goal is to know that enough cash will be available to meet day-to-day obligations and to spot when shortfalls require financing or timing adjustments. This emphasis on cash timing is what sets it apart from profitability analyses (which look at net income on the income statement), long-term solvency measures (which assess the ability to meet obligations over a longer horizon), or depreciation tracking (which relates to non-cash accounting entries). By anticipating cash needs, a hospital can maintain liquidity, avoid interruptions in operations, and plan appropriate funding when needed.