This chapter focuses on the steps taken by businesses to achieve their planned levels of profits a process called profit planning. Profit planning is accomplished by preparing various budgets, which, when brought together, form an integrated business plan known as a master budget. Budgeting is the process of forecasting future financial activities and determining their impact on future decisions. Almost every organization and even many individuals engage in budgeting activities. For those individuals with limited financial resources, budgeting helps estimate cash flows (both in and out) each period, and identifies whether plans are reasonable. For businesses, budgets are used to plan inventory purchases, borrowing, outlays for operating expenses, and to prepare the forecasted balance sheet and income statement for some future time. Budgets are also used to direct employees, to evaluate their performance (budgeted versus actual performance), and to control costs (expenditures are limited to budgeted amounts).