Which type of budget involves a starting point of zero and requires justification for every expenditure?

Zero-based budgeting is an approach to budgeting in which all expenses must be justified for each new period, starting from a "zero base." This means that every function within the organization is analyzed for its needs and costs. Under this model, no previous budgets are used as a reference point; instead, each budget period begins anew.

This type of budgeting emphasizes the need for evidence and justification for every single expenditure, promoting cost efficiency and ensuring that funds are allocated based on current needs and priorities rather than historical spending patterns. This method encourages managers to think critically about their spending and prioritize budget requests based on necessity and anticipated impact.

In contrast to other budgeting methods, such as line-item budgeting, which merely organizes expenses by categories without scrutiny of the necessity of each line item, zero-based budgeting aims to align organizational activities directly with objectives. Performance budgeting and master budgeting also have distinct frameworks that focus on specific aspects of financial planning but do not require starting from zero or justify each expense in the same comprehensive manner as zero-based budgeting.