Principles of Islamic Accounting

CHAPTER 6Accounting for Zakat

Learning Outcomes

At the end of this chapter, you will be able to:

1. Demonstrate an understanding of the concept, principles, and objectives of zakat.
2. Discuss the basic fiqh (jurisprudence) rules of zakat.
3. Calculate zakat base using both the net assets method and the net invested funds method.
4. Evaluate the different treatment of zakat in the income statement.
5. Understand how zakat is disclosed in the financial statements.

The central features of Islam are its five pillars: The declaration of faith (shahada), daily prayers, the giving of alms (zakat), fasting, and pilgrimage. This chapter focuses on zakat, the third pillar. The rich, endowed with wealth that ultimately belongs to God, have an obligation to spend it in the way of God and to redress any social injustice. This entails giving the poorer members of society some part of what is in excess of their needs. Zakat is essentially a tax that every Muslim whose wealth exceeds a certain nisab (minimum amount) has to pay. Accordingly, zakat may be regarded as a social security system in Islam. Further, zakat means purification and growth as it washes away the greed and the acquisitive orientation of the rich. Most important, Muslims believe that the giving of alms will not reduce one's wealth; if at all, it will increase one's riches further.

The following verse in the Quran attests to this:

The parable of those who spend their substance in the way of God is that of a grain of corn: it grows ...