Zakat provision
In one sentenceA liability recorded at year end for the estimated Zakat on the Zakat base, paid when the return is filed within 120 days of the end of the financial year.
Simply put
Zakat belongs to the year that has ended but is paid afterwards, so it is recorded in the books as an expense and a liability before closing the year so the financial statements are correct.
On payment the provision is closed, and any difference between the estimate and the final amount is handled in the year it appears.
Worked example
An establishment estimated Zakat for its Gregorian year on a base of 400,000 SAR.
Estimated Zakat400,000 × 2.57768% = 10,310.73 SAR
Dr. Zakat expense10,310.73
Cr. Zakat provision10,310.73
Liability shown in the statement of financial position10,310.73 SAR
Don't confuse it with
ProvisionsThe Zakat provision is one type of provision, and it is an obligation of the business itself.