Zero based budgeting is approach to budgeting in which budgeting process is done as if the company starts its operations on the year of budgeting. It require activities to be evaluated each time a budget is produced. Each functional budget is prepared on the basis that each cost element is justified as though the activities were occurring for the first time. No item of expenditure is included in the budget without full prior evaluation and justification.
Zero based budgeting attempt to eliminate unnecessary expenditure being retained in budgets from year to year.