Q: How does one practically add up the value of all stock in business?
A: Zakat on a business can be calculated in the following three ways:
Stock count/Stock take
The most precise and ideal method of Zakat calculation is performing a valuation of stock on one’s Zakat anniversary. The accounting term is “stock take“ all businesses trading in physical goods have to undertake at least once a year especially for financial auditing purposes.
Personal and up to date record
If a stock count is very difficult or impractical, a business should keep a track and record of up to date transactions, cash flow and stock. Some businesses use a JIT (Just-in-time) stock system where the update on the state of the goods is almost instant once recorded. This can then be used as a fairly accurate method to calculate Zakat.
Use the Balance Sheet
If keeping an accurate record is very difficult and almost impractical due to a high quantity of stock and Zakatable assets, as a last resort, you may use the last balance sheet as a reference for your net Zakatable assets. However, in such a scenario, one MUST do the following two:
1) consider and determine any obvious adjustments to his net Zakatable assets on the actual Zakat anniversary.
2) Apply the gross margin percentage to the value of stock on the balance sheet.
As a precautionary measure to ensure one’s Zakat liability is fulfilled, paying a little more than your net figure is prudent and sensible.
And Allah knows best!