Profit Sharing System Based on DSN MUI: Accrual Basis and Cash Basis 

In recent decades, Islamic financial institutions have grown rapidly in Indonesia. This financial system offers solutions that align with Islamic Sharia principles, one of which is the profit-sharing system. DSN MUI Fatwa No. 14 of 2000 provides guidelines on the profit distribution system, including the division of profits based on accrual basis and cash basis. 

Definitions of Accrual Basis and Cash Basis 

Accrual basis is an accounting method where revenues and expenses are recognised when transactions occur, regardless of when cash is received or paid. In the context of profit sharing, profits are calculated and shared based on specific accounting periods, even if cash payments have not yet been made. Conversely, cash basis is an accounting method where revenues and expenses are recognised only when cash is actually received or paid. In a profit-sharing system, profits are distributed only when cash is received, ensuring that the distribution is based on actual cash flow. 

Explanation and Examples 

In an accrual-based profit-sharing system, profits are calculated and recognised in financial statements when the transaction or economic event occurs, without waiting for the cash to be received or paid. This provides a more comprehensive view of financial performance. For example, an Islamic bank has an investment project with a profit-sharing ratio of 60:40 between the bank and the customer. At the end of the period, the project generates a profit of Rp100 million. Based on the accrual basis, this profit is immediately recognised and divided Rp60 million for the bank and Rp40 million for the customer, even if cash has not yet been received. 

Also Read: How to Analyse Profits Shared in a Mudharabah Contract from the Income Statement 

Meanwhile, in a cash-based profit-sharing system, profits are recognised and distributed only after cash is received. This reduces the risk of payment uncertainty and ensures that distribution is based on available cash. Using the same example, if the Rp100 million profit has not been received in cash by the end of the period, no profit distribution is made until the cash is actually received. Once the cash is received, the profit is divided according to the agreed ratio. 

Implementation in Islamic Financial Institutions 

Islamic financial institutions, such as Islamic banks, can apply both bases depending on the product type and agreements with customers. Products like mudharabah deposits and musyarakah financing can use accrual basis for internal reporting and cash basis for actual profit distribution. This allows the bank to provide accurate and comprehensive financial reports while ensuring that profit distribution is based on available cash. 

Also Read: Musyarakah With Tiered Profit Sharing, Is It Allowed? 

Benefits and Challenges 

The accrual-based profit-sharing system offers various benefits, including providing a more accurate and comprehensive financial picture and allowing for more proactive financial management. However, the accrual basis may cause liquidity issues if cash is not received promptly. On the other hand, the cash basis reduces the risk of payment uncertainty and ensures that profit distribution is more realistic based on available cash. The main challenge of the cash basis is that it may not reflect true financial performance if cash has not been received despite profits being generated. 

DSN MUI Fatwa No. 14 of 2000 provides a crucial framework for the profit distribution system in Islamic financial institutions. Understanding accrual basis and cash basis helps financial institutions and customers manage and distribute profits more fairly and transparently, in accordance with Sharia principles. With proper implementation, this system not only provides economic benefits but also supports the values of fairness and transparency in business. 

Also Read: Profits Distribution in Mudharabah & Musyarakah: Permissible with High Cash Reserves?

Wallahu a’lam 

References

Dewan Syariah Nasional Majelis Ulama Indonesia. (2000). Fatwa DSN MUI No. 14 Tahun 2000 tentang Sistem Distribusi Hasil Usaha dalam Lembaga Keuangan Syariah. Retrieved from https://tafsirq.com/fatwa/dsn-mui/sistem-distribusi-hasil-usaha-dalam-lembaga-keuangan-syariah 

Warren, C. S., Reeve, J. M., & Duchac, J. E. (2017). Pengantar Akuntansi (Adaptasi Indonesia). Jakarta: Salemba Empat.