Zero Based Budgeting

Zero based budgeting is a budgeting approach where each and every line of budget is started and planned from the scratch. Unlike common budgeting methods in this method every expenditure is justified from scratch instead of using the same baseline and only justifying the incremental changes within the budget. Zero based budgets uses an approach in which all the expenses regarding a new accounting period are justified from scratch.  As the name of the technique indicates zero budgets the base of this budget starts with zero declining all the variances of the past accounting period.

The flow of zero based budgeting technique is quite simple as in the first step it identifies the goals and objectives of the business. The next step leads analyzes and compares different approaches and methods that can be used to accomplish the task. The next step deals with the evaluation of funding levels and modes that will suit well to the objective and goals. In the last step the priorities regarding different objectives and goals are set.

There are several advantages of zero based budgeting technique such as it provides an opportunity of alternative analysis that helps in evaluating different methods of accomplishing a job. In this technique all the expenditure are accurately tied with the activities as a result there are very few chances of the budget to be inflated. With the help of this technique all the non-key activities that are not critical to the business can be eliminated easily. Zero based budgeting also identify redundancy in the activities that can be eliminated.

Other Related Accounting Articles:

• Budgeting Methods: How to choose one for your business
• Zero Based Budgeting (ZBB):
• Fixed Budget
• Human Factors in Budgeting
• Participative Budgeting or Self Imposed Budgeting
• Inventory Purchases Budget for a Merchandising Firm
• Profit Planning
• Selling and Administrative Expense Budget
• International Aspects of Budgeting
• Capital Budgeting: The Payback Technique