Net Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount

Introduction Zakah is a form of tax and alms mandated by Islam? The concepts underlying zakah are that the rich are responsible for the poor and the poor have the right to receive zakah. This does not imply that Islam is anticapitalist; in fact, Islam motivates the rich to invest funds so they will...

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Autores principales:	Mohamed H. El-Badawi, Sultan M. Al-Sultan
Formato:	article
Lenguaje:	EN
Publicado:	International Institute of Islamic Thought 1992
Materias:	Islam BP1-253
Acceso en línea:	https://doaj.org/article/5148f9f9d0a54c47ba9089ba88665c4f
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spelling	oai:doaj.org-article:5148f9f9d0a54c47ba9089ba88665c4f2021-12-02T17:47:04ZNet Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount10.35632/ajis.v9i1.25932690-37332690-3741https://doaj.org/article/5148f9f9d0a54c47ba9089ba88665c4f1992-04-01T00:00:00Zhttps://www.ajis.org/index.php/ajiss/article/view/2593https://doaj.org/toc/2690-3733https://doaj.org/toc/2690-3741 Introduction Zakah is a form of tax and alms mandated by Islam? The concepts underlying zakah are that the rich are responsible for the poor and the poor have the right to receive zakah. This does not imply that Islam is anticapitalist; in fact, Islam motivates the rich to invest funds so they will not be diminshed by paying zakah. Islam opposes idle savings, as it encourages the investment of funds for increased production, employment, and assistance to the poor.~ Zakah is ordained by the Qur'an, but its technical details are interpreted by the rules and jurisprudence of Islam. All economic entities maintain financial records of some kind and prepare financial statements according to generally accepted accounting standards. These records and statements are designed for different purposes and are not necessary for determining the amount of wealth subject to zakah. Many researchers have investigated the methods employed to determine the zakatable amount levied on trade assets ('Urud al tijarah). These methods may be summarized into two approaches: a) the net working capital approach and b) the owner's equity approach. This paper investigates the feasibility of using the net working capital approach (i.e., accounting principles) and the owner's net equity approach (i.e., the Saudi system) to determine the zakatable amount of trade assets. It will also show the relationship between the two approaches. This paper is divided into five sections: a) introducing the principles and conditions of zakah accounting for businesses; b) discussing the net working capital approach and how to determine the growing capital as the basis for ascertaining the &table amount by analyzing the elements of working capital and the financial transactions during the year; c) analyzing the owner's equity approach used in Saudi Arabia to determine the &table amount; d) applying both approaches to a numerical example; and e) contrasting the growing capital with the zakatable amount. Principles and Conditions of Trade Zakah ('Urud al Tijarah) There are two types of assets. The first type, which is not subject to zakah, includes those capital assets owned for the purpose of using them in one's business. Examples of such assets are the tools and machines used for production or marketing. The second type, which is subject to zakah, includes those assets manufactured or purchased for malung a profit by reselling them ... Mohamed H. El-BadawiSultan M. Al-SultanInternational Institute of Islamic ThoughtarticleIslamBP1-253ENAmerican Journal of Islam and Society, Vol 9, Iss 1 (1992)
institution	DOAJ
collection	DOAJ
language	EN
topic	Islam BP1-253
spellingShingle	Islam BP1-253 Mohamed H. El-Badawi Sultan M. Al-Sultan Net Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount
description	Introduction Zakah is a form of tax and alms mandated by Islam? The concepts underlying zakah are that the rich are responsible for the poor and the poor have the right to receive zakah. This does not imply that Islam is anticapitalist; in fact, Islam motivates the rich to invest funds so they will not be diminshed by paying zakah. Islam opposes idle savings, as it encourages the investment of funds for increased production, employment, and assistance to the poor.~ Zakah is ordained by the Qur'an, but its technical details are interpreted by the rules and jurisprudence of Islam. All economic entities maintain financial records of some kind and prepare financial statements according to generally accepted accounting standards. These records and statements are designed for different purposes and are not necessary for determining the amount of wealth subject to zakah. Many researchers have investigated the methods employed to determine the zakatable amount levied on trade assets ('Urud al tijarah). These methods may be summarized into two approaches: a) the net working capital approach and b) the owner's equity approach. This paper investigates the feasibility of using the net working capital approach (i.e., accounting principles) and the owner's net equity approach (i.e., the Saudi system) to determine the zakatable amount of trade assets. It will also show the relationship between the two approaches. This paper is divided into five sections: a) introducing the principles and conditions of zakah accounting for businesses; b) discussing the net working capital approach and how to determine the growing capital as the basis for ascertaining the &table amount by analyzing the elements of working capital and the financial transactions during the year; c) analyzing the owner's equity approach used in Saudi Arabia to determine the &table amount; d) applying both approaches to a numerical example; and e) contrasting the growing capital with the zakatable amount. Principles and Conditions of Trade Zakah ('Urud al Tijarah) There are two types of assets. The first type, which is not subject to zakah, includes those capital assets owned for the purpose of using them in one's business. Examples of such assets are the tools and machines used for production or marketing. The second type, which is subject to zakah, includes those assets manufactured or purchased for malung a profit by reselling them ...
format	article
author	Mohamed H. El-Badawi Sultan M. Al-Sultan
author_facet	Mohamed H. El-Badawi Sultan M. Al-Sultan
author_sort	Mohamed H. El-Badawi
title	Net Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount
title_short	Net Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount
title_full	Net Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount
title_fullStr	Net Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount
title_full_unstemmed	Net Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount
title_sort	net working capital versus net owner's equity approaches to computing zakatable amount
publisher	International Institute of Islamic Thought
publishDate	1992
url	https://doaj.org/article/5148f9f9d0a54c47ba9089ba88665c4f
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Net Working Capital versus Net Owner's Equity Approaches to Computing Zakatable Amount

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