An incremental budget is prepared using a previous period's budget or actual performance as a basis, with incremental amounts added for the new budget period. It often fails to account for changed operating conditions.
A zero-base budget (ZBB) is a cash-flow budget where the manager responsible must prepare and justify all expenditures from a zero base, assuming no prior spending commitments. This method compels a thorough review of each cost element, contrasting sharply with the incremental budget, which adjusts previous budgets.
Discover comprehensive accounting definitions and practical insights. Empowering students and professionals with clear and concise explanations for a better understanding of financial terms.