Waseela Foundation: Accounting for Zakat

The case focusses on the issues faced by Waseela Foundation in its accounting system, specifically in recording the receipt of zakat donations and utilization thereof. The existing accounting system is simple and puts all types of donations into one pool. Expenses are paid out of that pool indiscriminately. It is not acceptable to some zakat donors who have different interpretations regarding the use of zakat funds. Mr Mustafa was given the task of redesigning the accounting system which would assure the donors that their zakat was being managed and disposed of as per their instructions. Accounting for donations in non-profits requires an elaborate system of recording and reporting that can distinguish between different sources of donations and their utilization. This is important because some donations have to be spent on specific purposes. Hence, unlike for-profit organizations, non-profit organizations have to keep different sources of funds separate for recording and reporting purposes. Zakat poses special accounting challenges because there are variations in interpretations of different schools of thought with regard to avenues of spending the zakat. The case thus provides students with an excellent opportunity to understand the intricacies of fund accounting for non-profits.