What Is Zero Based Budgeting?

What Is Zero Based Budgeting?
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  1. According to definition: Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a “zero base,” and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether each budget is higher or lower than the previous one.
    Generally speaking, Zero based budgeting in management accounting involves preparing the budget from the scratch with a zero-base. It involves re-evaluating every line item of cash flow statement and justifying all the expenditure that is to be incurred by the department. Zero Based Budgeting and Activity-Based Budgeting are the most popular budgeting methods. The selection of preferred budgeting method depends on the functioning and suitability to an organization.

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