What defines zero-based budgeting?

Zero-based budgeting is a method where every expense must be justified from scratch for each new budget period, rather than simply adjusting the previous year's budget. This approach requires that all departments are required to evaluate their needs and justify each expense based on current and future requirements, rather than historical patterns.

This system promotes a thorough review of all expenses, as it eliminates the assumptions that existing funds are automatically allocated without justification. By starting from a "zero base," it encourages a more deliberate and analytical approach to financial planning. This not only provides clarity on what funding is necessary but also allows organizations to prioritize spending more effectively based on current needs rather than past expenditures.

The other choices do not adequately capture the essence of zero-based budgeting: starting with last year's budget as a base would be reflective of traditional budgeting methods, while the notion that zero-based budgeting only applies to large corporations overlooks its applicability across various organizational sizes. Additionally, focusing solely on expected income rather than expenses detracts from the core principle of justifying each expense, which is central to zero-based budgeting.