What is the Zakat treatment for prepaid expenses on one’s balance sheet?

Question:

What is the Zakat treatment for prepaid expenses?

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

 The Answer:

The prepaid sum is no longer in one’s ownership and as such, it is not Zakatable.

Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or have not yet expired. A prepaid expense is a type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received in the future. Prepaid expenses are initially recorded as assets, but their value is expensed over time as the benefit is received onto the income statement, because unlike conventional expenses, the business will receive something of value in the near future.

 

And Allah Ta’ālā Alone Knows Best

Mufti Faraz Adam, 
Shariah Advisor
Amanah Finance Consultancy

 

DISCLAIMER:

The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any institutions to which he may be affiliated.

Arguments and ideas propounded in this answer are based on the juristic interpretations and reasoning of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another Mufti may reach different conclusions to the one expressed by the author. Whilst every effort has been taken to ensure total accuracy and soundness from a Shari’ah perspective, the author is open to any correction or juristic guidance. On the event of any juristic shortcomings, the author will retract any or all of the conclusions expressed within this answer.

The Shari’ah ruling given herein is based specifically on the scenario in question.  The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage.  This answer may not be used as evidence in any court of law without prior written consent from the author.  Consideration is only given and is restricted to the specific links provided, the author does not endorse nor approve of any other content the website may contain.