Stone Company's budgeted operating expenses for April are $98,000 which includes $10,000 of depreciation expense and insurance expense. During April, Stone's budgeted insurance expense is $3,500; and, Stone's prepaid insurance account is budgeted for a $1,000 increase during April. How much are Stone's budgeted cash payments for operating expenses for the month of April?

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The budgeted cash payments for operating expenses are calculated by subtracting non-cash expenses (depreciation) and adjusting for changes in prepaid expenses (insurance in this case) from the total budgeted operating expenses. The total budgeted operating expenses are $98,000, which includes $10,000 of depreciation (a non-cash expense). Subtracting the depreciation gives $88,000. Since the prepaid insurance account is budgeted to increase by $1,000, it means less cash is paid out for insurance than the expense recognized. Therefore, you add back this $1,000 to the cash payments, resulting in $89,000 ($88,000 + $1,000) in budgeted cash payments for operating expenses.

Stone Company's Budgeted Operating Expenses for April Are $98,000 Which