Were Islamic Records Precursors To Accounting Books Based On The Italian Method

by Omar Abdullah Zaid

INTRODUCTION

The Italians borrowed the concept of double entry from Arabs

(Have 1976, p.11)

Europe at that time was temporarily at standstill, and we shall therefore not expect to find a visible or appreciable progress in method of accounting during the period ( Woolf, 1912, p. 54)

 Prior to the establishment of Islamic State in 622, the geographical scope of Arabic commercial and financial activities was very limited and were concentrated in the hands of a few families in Makkah and Middle East region. The conventional trade (continued after 622 till year 10 Hijriah (H) 632)

There are 2 major trade session

Winter Trade Journey

Directed to Yemen

Summer Trade Journey

With Ash-Sham (today known as Syria, Lebanon, Jordan, Palestine and Israel)

Year 8 H ( 630)- Arab embraced Islam and became preoccupied with the spread of Islam beyond Arabian Peninsula and stretching their commercial activities beyond Middle East.

Arab sailed their galleys along the costs of Arabia and India, arrived in Italy with luxury goods unknown in Europe (Have 1976, p. 13)

- The increasing commercial

activities of Muslim traders necessitated the pooling fund to finance increasing of fund to finance increasing European demands for the goods. -Led to emergence of Partnership

Need for proper accounting record and report (required by Quran): - To account entrepreneurs and partners -Requirement of Zakat as detailed in Shariah Islamiiah

Early stage of Islamic State - Zakat and other revenues were not of great financial significance and not recorded.

During the time of Caliph Omar bin AlKhattab, -the geographical expansion led to significant increases in revenues and the responsibilities of the Islamic State.

-Sahaby

recommended the establishment of records to account the states revenues and expenses (recommended by Al-Waleed bin Hisham AlMugierah)

Caliph Omar bin Al-Khattab established Diwan, but the contribution of Muslim traders cannot be ignores.

Muslim traders were religiously motivated to aimed at the measurement of profits and capital growth for payment of Zakat to Baitul-Mal (public treasury)
Zakat (religious levy) did not require the assessment of individuals by states as the case is today

Zakat is a liability entrusted to Muslim. It is received from those who pay it freely those who dont pay it are folled by Allah (The Ulamma)

Shariah Islamiah specifies the source of Zakat, its rates, calculations and application of the fund received from Zakat.

FACTORS THAT CONTRIBUTED TO THE DEVELOPMENT OF ACCOUNTING RECORDS BY MUSLIM

1. ZAKAT 2. BAITULMAL
3. DELEGATION OF DUTIES

obligatory payment made annually under Islamic law on certain kind of property and used for charitable and religious purpose.

Zakat

Zakat fitrah (al-fitr)

Zakat from earning (al-mal)

Careful recording and proper observation of the date of occurrence (al-haol)

Required the maintenance of adequate records and the preparation of accounting reports to discharge the responsibility paying zakat as required by shariah.

Baitulmal
Financial institution responsible for the administration of taxes in accordance with shariah.

Managing personal finances and government expenditures.

Function

Distribute zakat revenue for public works

 The obligation of paying Zakat encourage the Baitulmal to make financial reports periodically. All finance activities must be recorded and the date, month and year must be stated. Changes is cash flow must be explained. Each account is need to be audited by the higher officials. Doubles entry was practiced widely in Baitulmal, based on al-hisab concept.

Reason to delegate : -Identify and classify of specialized skill -Prevent the accumulation of duty under one person.

Delegation of duties

Use concept of AshShura ( consultation)

Necessary to select employees with the appropriate knowledge and/or experience in the particular field of employment.

ACCOUNTING RECORDS DEVELOPED BY MUSLIMS

 The first person introduce bounds records and registers was Caliph Al-Waleed bin Abdul-Malek (86-96) Diwan Al-Kharaj and Diwan Al-Jund were assigned to Khaled bin Barmak, to maintain the books of accounting This has effect in development in accounting practice in the Islamic state. The reviewer is appointed to review the books

 Accounting was classified into specialization :

reviews of books auditing stable accounting accounting for livestock construction accounting rice-farm accounting agriculture accounting warehouse accounting mint accounting currency accounting sheep-graving accounting farm accounting treasury accounting

 Audit function in the Islamic State : Al- Hariery suggested that accounting is subject to verification Self-control and self-judgments was emphasize during that time which are the reflection of accountability

Jaridah
The primary book recording was named Jaridah Accounting clerk had to maintain the books, sign his name at the end of the book, and stamp it with the sultans seal The Jaridah start with the phrase In the Name of Allah, the Most Gracious, the Most Merciful This is similar in the Pacioli records. Thus support that Italian adopted knowledge from another culture The Jaridah and other accounting books were developed and used

Types of Jaridah
i)Jaridah Al-Kharaj

- to records a specific type of zakat imposed on earnings from land, crops and animals - similar with receivable subsidiary ledger - the organization of Jaridah Al-Kharaj is in alphabetical order -the indexing was geographically based to facilitate the identification of collection made by the levy collectors - this was important for the preparation of the budget of the Wilayah

ii)

Jaridah Annafakat (expenditure journal)

-maintained by Diwan An-Nafakat - All expenses relating to the state were recorded and supported by relevant evidence
iii) Jaridah Al-Mal (funds journal)

- maintained by Diwan Al-Mal - responsible for the receipts of zakat and its payment.
iv) Jaridah Al-Musadareen (consfiscated funds journal)

-maintain by Diwan Al-Musadareen - records fund confiscated from individuals not complying with the requirements of Shariah Islamiiah

Daftar
Omar bin Abdul Aziz is the first caliph to make the issuance of receipts mandatory There are three types of money collected : i) Daftar Al Yawmiiah (daily book) ii) Daftar Attawjihat (books of directions) iii) Daftar Attahwilat ( books of transfers)

Types of Daftar
Daftar Al Yawmiiah (daily book)

-to records expenses and other financial transaction associated with Zakat Al-Kharaj -should follow the date of occurrence and comply with prescribed recording procedures -the recording procedures was subject to preparation of Ash-Shahed

Types of Daftar
Daftar Attawjihat (books of directions)
-to record budget expenses -similar to general ledger -used to control regional expenses and to ensure province compliance with budget allocation. - two types of budget : a) Mukarrariyah operational budget b) Itlakiyyah discretionary budget

Types of Daftar
Daftar Attahwilat ( books of transfers) -to record transfer of funds between the Wilayah and the central government -maintain by each Wilayah within the Islamic State - the central government approved the budget for each Wilayah - the difference between Daftar Attahwilat and Daftar Attawjihat will transferred to or from the central government and recorded in Daftar Attahwilat

ACCOUNTING REPORTS

 Control & accountability objectives. Zakat & partnership as the main reasons

From the perspectives of Zakat: Reflects the results of financial positions & operations to calculate Zakat payable.

 From the perspectives of partnership: Active partners to account for their stewardship of their partnership. Determination of zakat payable of a partner based on their portion of profit & assets appreciation.

TYPES OF REPORT
AL KHITMAH
Definition : final or end Prepared at the end of each month / financial year Initially prepared for government monthly report

TYPES OF REPORT
AL KHITMAH AL JAMEAH
Definition : Comprehensive final report Prepared annually by the accountant Covered all financial activities of the relevant Diwan Showed the Diwans itemized revenues, expenses, and surplus or deficit at the end of the financial year.
a combined Income Statement and Balance Sheet Includes current and capital expenditure

If accepted by the head of department

called as Al-Muwafakah (acceptance) approval of the report balances by the head of the department

If not accepted by the head of department

called as Al- Muhasabah (account) based on the discovery of the requirement for further justifications, clarifications, adjustments, or restructuring of the reports contents.

Al-Khitmah Al Jameah In the name of Allah, the Most Gracious, the Most merciful Al-Khitmah Al-Jameah for Receipts and Expenses during the period Muharram 1 to Dhul-Hejjah 30, Year.......H Prepared by......., Assisted by........, Supervised by.........., Approved by............ Sources of Funds REVENUES FOR THE PERIOD a) Levies received from........., date received.............., XXX b) Other income, its source........, date received............, XXX SUBTOTAL ADD a) Brought forward from last nancial year b) Sales c) Reconciliations and Fines d) Loans e) Unclaimed Deceased Estate f) Transfers Al-Fadhlakah (Total) Use of Funds a) Transfers to other Diwans b) Purchases made by this Diwan c) Other Expenses

XXX

XXX XXX XXX XXX XXX XXX

XXX XXX

XXX XXX XXX

XXX

Al-Hasel (Balance)

XXX

CONCLUSION

 The type, layout and names of some of the records used in Islamic State are similar to those used in the Italian Republics. The commercial links between Muslim and Italian traders would have influenced the development of accounting records in the Italian Republics. - name of primary books - layout of some books

In conclusion, this journal argues that the development of accounting records and reports in the Islamic State have most likely contributed in the development and practice of accounting in the Italian Republics as documented by Pacioli in 1494.