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 Hijri’ah (H) 632)


ThereTrade
are 2 Journey
major trade session
Winter
• Directed to Yemen

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

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 Shari’ah Islami’iah

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)

-

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
responsibilitie
s of the
Islamic State.

-Sahaby

recommended
the
establishment
of records to
account the
state’s
revenues and
expenses
(recommende
d by AlWaleed 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 don’t pay it
are folled by Allah’ (The Ulamma)

Shari’ah 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

1.
ZAKAT
2.
BAITULMAL
3. DELEGATION OF
DUTIES

1 Zakat
Zakat
fitrah
(alfitr)

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

Zakat
from
earning
(al-mal)

t
p
e
c
n
o
C
in ti
a
l
u
calc akat
z
g
n
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.

2

Financial institution
responsible for the
administration of
taxes in accordance
with shariah.
Managing
personal
finances
and
government
expenditure
s.

Functio
n

Baitul
mal

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.

3
Use concept of
Ash-Shura’
( consultation)

Delegatio
n of
duties
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 AbdulMalek (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 sultan’s 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 AlKharaj

- 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
iii) Jaridah
Al-Mal (funds
evidence
journal)

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

-maintain by Diwan Al-Musadareen
- records fund confiscated from individuals
not complying with the requirements of
Shari’ah Islami’iah

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 –Yawmi’iah (daily book)
ii) Daftar Attawjihat (books of directions)
iii) Daftar Attahwilat ( books of transfers)

Types of Daftar
• Daftar Al –Yawmi’iah (daily
book)

-to records expenses and other financial
transaction associated with Zakat AlKharaj
-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 JAME’AH
 Definition : Comprehensive final report
 Prepared annually by the accountant
 Covered all financial activities of the
relevant Diwan
 Showed the Diwan’s itemized revenues,
expenses, and surplus or deficit at the end
WHY???
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 report’s contents.

CLASS OF FINANCIAL REPORTS
(FOR THE PROTECTION ON
CAPITAL)
Ar- Ra’ej Menal Mal
• Collectable debts

Al-Munkaser Menal Mal
• Uncollectible debts

Al-Muta’adhdher Wa-Al-Mutahayyer Wa-alMuta’akked
• Difficult, doubtful, and complicated debts

Al-Khitmah Al Jame’ah
In the name of Allah, the Most Gracious, the Most merciful
Al-Khitmah Al-Jame’ah 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
XXX
ADD
a) Brought forward from last financial year
XXX
b) Sales
XXX
c) Reconciliations and Fines
XXX
d) Loans
XXX
e) Unclaimed Deceased Estate
XXX
f) Transfers
XXX
XXX
Al-Fadhlakah (Total) XXX
Use of Funds
a) Transfers to other Diwans
b) Purchases made by this Diwan
c) Other Expenses
Al-Hasel (Balance)

XXX
XXX
XXX
XXX

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.