ACCOUNTING SYSTEMS AND RECORDING PROCEDURES IN THE EARLY ISLAMIC STATE
Accounting
Historians Journal, The, Dec 2004
by Zaid,
Omar Abdullah
Abstract: Despite advances in historical knowledge the precise origins of accounting systems and
recording procedures remain uncertain. Recently discovered writings suggest
that accounting has played a very important role in various sections of Muslim
society since 624 A.D. This paper argues that the accounting systems and
recording procedures practiced in Muslim society commenced before the invention
of the Arabic numerals in response to religious requirements, especially zakat,
a mandatory religious levy imposed on Muslims in the year 2 H.
INTRODUCTION
In an influential contribution Parker [2000] wrote that
"the writing of accounting history is increasingly dominated by writers in
English discussing private-sector accounting in English speaking countries of
the 19th and 20th centuries . . . the scope of accounting history is much wider
than this" [p. 66]. This paper seeks to further advance
our increasing knowledge of the history of accounting outside English-speaking
countries in periods earlier than the modern era. It also contests de Ste.
Croix's claim [1981, p. 114] that "there seems to have been no really
efficient method of accounting, by double or even single entry, before the
thirteenth century". Analysis of medieval bookkeeping systems in Muslim
society throws doubt on this assertion.
The paper seeks to explore the work of early Muslim
scholars on accounting in the context of zakat (religious levy) and the
expansion in the revenues and expenditures of the Islamic state, the structure
of business in the Islamic state and the religion that shaped the economic and
social life of Muslims. This remains a subject which "has not been
explored in depth" [Hamid et al., 1993, p. 132], It
will be shown that the accounting systems developed and practiced in parts of
the Muslim world, especially the Middle and
While there are exceptions [Lall Nigam, 1986; Hamid et
al, 1993; Scorgie, 1990; Solas and Otar, 1994; and Zaid, 2000a and 2000b], few
western and contemporary Muslim accountants have sought to document and explore
early Muslim accounting. Lal Nigam [1986] has highlighted the role played by
Indian accountants in the development of accounting prior to Pacioli's Summa of
1494. The author claims that the development of "a system of bookkeeping
which predates and was far ahead in sophistication of its European counterpart.
This system recorded the two aspects of each event, and took care of businesses
of varying sizes and dimensions. Called Bahi-Khata, Mahajanor Deshi-Name as its indigenous to the soil, it is still practiced in most
parts of the country" [1! 986, p. 149]. Scorgie [1990] examined "the evidence that supports a contention that the Indians
imitated and adopted the bookkeeping systems conveyed by the Moguls who
conquered
Another study that refers to the
contribution of Muslim scholars in the development of accounting was made by
Hamid et al [1993]. Hamid et al [1993] suggest
that "Islam has the potential for influencing the structure,
underlying concepts and the mechanisms of accounting in the Islamic world"
[p. 131]. The authors conclude that "the potential influence of Islam on
accounting policies and practices could inject analyses of national accounting
difference with a cultural dimension more profound than that emanating from the
impact of indigenous secular law, general custom and commercial habit"'[p.
147]. This conclusion was based on earlier
developments evidenced by Zaid [2000a, 2000b].
The accounting historian Sieveking considered "that
bookkeeping arose as a direct result of the establishment of partnerships on a
large scale" [
Lieber [1968, p. 230] suggests that Italian traders
obtained their knowledge of sophisticated business methods from their Muslim
counterparts. Furthermore, Heaps [1895] stated that "the first European
who translated algebra from the writings of the Arabians is also supposed to
have written the first treatise on bookkeeping ... bookkeeping would first be
practiced by the first considerable merchants, and as these were the Arabians,
he ascribes to them the invention" [p. 21]. Writers such as Heaps [1895]
and Have [1976] assumed the contribution of Muslims as being synonymous with
that of Arabs. In reality Arabs and nonArabs
contributed to developments in the Muslim world. Generally
speaking, it appears that these authors were referring to Muslims as
Arab! s, perhaps due to the language spoken or the
origin of early Muslims from
The development of accounting and other sciences in Muslim
society was initiated by the teachings of Islam.
Accordingly, this requires a brief explanation of the religion of Islam and its
impact on the economic and social infrastructure that contributed to the
development of several sciences including accounting.
ISLAM AND ACCOUNTING
The religion of Islam was founded in Makkah1 in the year
610 A.D. [Abu Addahab, 2002, p. 649] with the revelation of the Quran to the
Prophet Mohammad, peace be upon him.2 At that time Arabs in the Arabian
peninsula generally, and in Makkah especially, pursued a tribal life
characterized by periods of war between the various tribes. Tribes were not
subject to any conventional or written rule except the rules of the head of the
tribe. Significant change occurred with the establishment of the Islamic state
in 622 A.D. in Al-Madienah Al-Munaw'warah3 when the principle of brotherhood was introduced. This required that all Muslims
act as brothers with no regard to country of origin, race, language, colour,
ethnic group or any other factor dividing human bei! ngs.
This principle was the foundation for social harmonization among those who
embraced Islam. Muslims denounced revenge, supported
each other financially and socially regardless of their historical differences.
They understood Islam as being a comprehensive code for spiritual and material
life. They commenced the study, interpretation and application of what was revealed in the Quran. A new state ruled by the Quran
emerged to replace the tribal nations and the various tribal rules. The Quran
offered guidance on social and commercial teachings. Examples of the social
teachings are the rules of marriage and inheritance. Examples of commercial
teachings are the rules of contract, finance, business, zakat4 and ethical
rules for conducting business and writing contracts.5
Commerce extended beyond the Arabian peninsula to parts
of Europe, Africa and the
The expansion in trade promoted the development of a
mechanism for ensuring adequate accountability for cash, goods received and disbursed.
The introduction and organization of zakat in 624 A.D. encouraged accounting
for the purpose of zakat calculation and payment. This development was enhanced
with the formal introduction of accounting books, concepts and procedures
during the time of the second Caliph, Omar bin Al-Kattab, who ruled between 13
and 23 Hijri'iah6 [H] (634-644 A.D.) [Zaid, 2000a, pp. 75-76]. The role of
zakat was equally important for both the state and individuals, especially
those engaged in business. Individual Muslims generally, and entrepreneurs
specifically, were concerned with the development and implementation of
accounting book! s, systems and recording procedures.
This interest was inspired by the need to comply with the requirements of
Shari'ah Islami'iah.1 An example of these requirements
is the need for proper calculation and payment of zakat as the consequence of
conducting business and making profits. This is provided in 30 Aiah [verses] of
18 Surah [chapters] of the Quran.8 Furthermore, the Quran requires the writing
and recording of debts and business transactions in accordance with Aiah 282
and 283 of the second Surah of AlBaqarah.9 The Aiah
282 is known as the debts Aiah. It is the longest Aiah in the Quran and
specifies all the requirements for writing debts and business transactions.
The development and practice of accounting in Muslim
society thus reflected Islam as a comprehensive code of spiritual and material
life. These developments and practices were documented by a
number of early Muslim scholars from 150 H [768 A.D.] in numerous printed and
handwritten books. Early Muslim scholars10 approached the practice of
accounting in the Islamic state from a variety of perspectives. However, it
should be mentioned that "the terms accounting
and accountant were not used in the early and middle stages of the Islamic
state. The exact date these terms came into use is not known
but probably could be traced to the influence of colonization and the
introduction of Western culture in the 19th century. The terms AlAmel,
Mubasher, Al-Kateb, or! Kateb Al-Mal were the common
titles for accountant/bookkeeper and accounts clerk. These titles were used interchangeably in different parts of the Islamic
state. The title Al-Kateb became the dominant title and was used to include any
person assigned the responsibility of writing and recording information whether
of financial or non-financial nature" [Zaid, 2000b, p. 330]. These terms
equate to "accountant" and as early as 365 H (976 A.D.) Al-Khawarismy
[1984] used the term "Muhasabah" for the function of accounting which indicates that the person responsible for
this function is "Muhaseb" (Accountant).
Al-Mazenderany [1363] was one of the early Muslim
scholars who documented the practice of accounting in Muslim society. While Al-Mazendarany's writings have been referred to by Solas and Otar
[1994] in their study of governmental accounting practice in the
Al-Mazendarany asserted that other books on accounting had been written before his own. He stated that these books
explained accounting practices in Muslim society and in the
One work which predated Al-Mazendarany
was Mafatieh Al-Uloom (Keys of Sciences). This appeared in
365 H (976 A.D.) and was authored by Al-Khawarizmy [1984], Al-Khawarizmy discussed
the types of records maintained in the Dewans and the book used to record
accounts.12 In one chapter dedicated to "Secretaryship",
Al-Khawarizmy described the technical terms that were common in Muslim society
regarding the duties of the secretary and also described the accounting systems
that were implemented during the 4th century Hijri'iah (10th century A.D.).
It has also been suggested that Al-Khawarizmy's book
was considered the most influential work of its time [Macve, 1996, p. 12].
Al-Mazendarany described the accounting systems used in the Islamic state in
greater de! tail than Al-Khawarizmy. Accordingly, the
current paper is based to a great extent on
AlMazendarany's Risalah Falakiyyah Kitabus Siyakat. This book is the only work
discovered by the author to date which details accounting systems and practices
in early Muslim society.
ACCOUNTING SYSTEMS DEVELOPED IN MUSLIM SOCIETY
The development of accounting in the Islamic state was
religiously motivated and associated with the imposition of zakat in the year 2
H (624 A.D.). Accounting appears to have commenced with the establishment of
the Dewans for the recording of Baitul Mal (public treasury) revenues and
expenses. The exact date of the first application of accounting systems in the
Islamic state is unknown, but it appears that these systems were
first documented by Al-Khawarizmy in 365 H (976 A.D.). The accounting
systems were structured to reflect the type of
projects undertaken by the Islamic state in compliance with its religious obligations.
These projects included industrial, agricultural, financial, housing and
service projects. The accounting systems comprised a se! t
of books and recording procedures. Some of these procedures were of a general
nature and applied to all accounting systems while others were
prescribed specifically for a particular accounting system. As mentioned
above, the person maintaining the books under these various systems was called Al-Kateb13 (bookkeeper/accountant).
The objective of accounting systems was to ensure
accountability, facilitate decision making generally, permit
the evaluation of completed projects. Although the systems were
initiated for government purposes, it is likely that some were
implemerited by private entrepreneurs in order to measure profit in conformity
with the mandatory religious requirement of zakat. It is also likely that the
successful application of accounting systems by government authorities promoted
the adoption of similar procedures among private entrepreneurs especially for the
purpose of zakat.
Accounting systems discussed and analyzed here were briefly mentioned by Al-Khawarizmy and were detailed by
AlMazendarany. These accounting systems were income-statement orientated and
designed to serve the immediate needs of the Islamic state. Some accounting
systems incorporated monetary and non-monetary transactions while others were solely based on monetary measurement. The reason for
the simultaneous use of monetary and non-monetary measurements was to ensure
the proper collection, disbursement, recording and control of certain state
revenues and expenses.
Seven specific accounting systems were developed and
practiced in the Islamic state as documented by Al-Khawarizmy and
Al-Mazendarany. Each of these is now explored.
Stable Accounting (Accounting for Livestock): This
system was under the supervision of a stable manager and required that relevant
transactions and events be recorded as they occurred.
Transactions under this system included, for example, food for camels, horses
and mules; caretaker wages; animals purchased, sold,
donated, slaughtered or died. The design of a special system of stable
accounting reflects the importance of livestock assets to individuals and the
state. As well as being a source of food animals were the only means of
transport for commercial, military and civil purposes. Livestock were used for
carrying goods and persons across the Muslim world and !
beyond, and were especially important to communities
that had no access to sea ports.
Although stable accounting was designed for the state's
use, its application in the private sector was likely because a significant
proportion of the population were engaged in the business of livestock, either
for consumption or transportation and the need for a system of recording and
measuring annual profits for the purpose of calculating payment of zakat. This is similar to current-day practices where "major
incentives to the preparation of accounts showing the overall 'profit' or
'loss' of a modern farm are the requirements of the Inland Revenue, as well as
lending bankers, and (in the case of farms organized as, or owned by, limited
companies) of the Companies Acts for the preparation of accounts for the
absentee owners - the shareholders" [Macve! , 1994, p. 75].
Construction Accounting: This system was used to account for construction projects undertaken by
government. The construction accounting system required the maintenance of a
separate journal for each construction site and required the recording of all
relevant transactions and events from the commencement of the project to its
completion. The construction accounting system required that the specifications
of individual projects be listed at the front of the
journal, followed by the terms of construction. Then followed
the record of transactions and events. Transactions were
recorded under the supervision of the personin-charge of the project,
namely, the architec! t. A similar supervision requirement
was required in stable accounting and suggests the imposition of a form of
internal control and accountability. Items recorded in the journals
included materials received and wages paid to carpenters, bricklayers and other
construction workers. The construction accounting system required that a
surplus or deficit at the completion of the project would be accounted for and
disclosed, and that any discrepancies be explained.
This requirement suggests that a form of budgeting was used.
Rice Farm Accounting (Agricultural
Accounting): This appears to have been a non-monetary system because
it required the recording of quantities of rice received and .disbursed and the
specification of the fields that produced the rice. The system
explained by Al-Mazendarany and Al-Khawariz.my did not indicate a segregation
of duties between recording and managing the inventory. It seems that the
bookkeeper had sole responsibility for both recording and keeping custody of
the inventory. This was unusual - the other accounting systems incorporated
specific internal and general control procedures. It appears that this form of
agricultural accounting was designed for state-owned rice farms or for the purpose of accounting for the rice received and
distributed as zakat in kind rather than in monetary form. The requirement to
identify the field from which the rice was harvested and the venues of the
zakat disbursement14 are also suggestive of this. The
non-monetary rice farm accounting system was similar to the grain accounts of
Zenon's or Appianus Egyptian estates, mentioned by Macve [1994, p. 59]. This
also required the recording of receipts and issues of grain in physical terms
and without reference to money measurement.
Warehouse Accounting: Warehouse
Accounting appears to have been designed to account
for the state's purchase of supplies. The system was placed
under the direct supervision of a person known to be trustworthy. This system
required the detailed recording of the type of goods received and the source of
delivery in books prepared for the purpose. The immediate and adequate
recording of the disbursement of goods in specified books was required. It
appears that at least two classified books were used
in this system. It is not stated whether the recording of goods received and
issued was in monetary terms only, or in physical and monetary terms, though
the latter appea! rs most likely in practice. It was
also a requirement that a stock count be conducted at
the end of the financial year and its results compared with stocks recorded in
the books. It was mandatory to investigate the causes of differences and to
question the store man about them.. The store man was
personally liable for any shortfall between the book and actual inventory. It
appears that the warehouse accounting system differed from that of "the
ancient world, where the inventories of items were maintained solely in
quantitative, physical terms" [Macve, 1996, p. 6]. This confirms that a
system of internal control was in existence because the store man was not the
bookkeeper. The scale of inventory referred to in warehouse accounting suggests
that it was less likely to have been used by private
entrepreneurs.
Mint Accounting (Currency Accounting): The mint
accounting system was designed and implemented in the Islamic
state before the 14th century A.D. It required the immediate conversion
of gold and silver received by the mint authority into bullion or coins. It
further required the immediate delivery of bullion and coins to the person in
charge. This suggests that the system did not allow either raw material (gold
and silver) or finished products (bullion and coins) to be
held on premises for any length of time. The requirement of immediate
conversion, minting and delivery would have been initiated
for security reasons to prevent theft. Bullion and coins would have b! een delivered to the equivalent of a contemporary public
treasury. The mint accounting system required the use of three specialized
journals. The first was used for recording inventory,
the second for recording revenues, and the third for recording expenses.
Purchases and wages were examples of costs incurred by the mint authority. It
was also mandatory to record the terms and conditions of the services provided
by the mint authority in the expenses journal. The revenue of the mint
authority was calculated at either 5% of the cost of
gold or silver, or in accordance with a predetermined amount. The criteria for the application of either calculation was not
mentioned by Al-Mazendarany or Al-Khawarizmy.
Sheep Grazing Accounting: This form of farm
accounting was initiated and implemented by government authorities in the
Islamic state and its use by private entrepreneurs to measure the 'profit' or
'losses' for the purpose of zakat is likely. Sheep grazing accounting was
different to Greek and Roman farm accounting "where the accounts did not
purport to show any more than movements of cash and kind, any dependence or
fixation on the accounting figures in forming ideas about profitability seems
much less likely" [Macve, 1994, p. 78]. Under this system
all animals given to the grazier or shepherd were recorded in a book designed
for the purpose. Revenue received eith! er in cash or
kind was also to be recorded. Revenue in kind received by the grazier included
animals and sheep products. It appears that this system used a number of
specialized books because of the requirement to record 'animals given' - assets
- in a different book from that used to record expenses. It is not clear
whether animals received were recorded as revenues or
were capitalized and recorded in the assets book. Neither
Al-Mazendarany or Al-Khawarizmy elaborated on this issue. Proper
classification and adequate disclosure was also a feature of farm accounting as it required the separate classification of
male sheep, female sheep, goats and their offspring. It was also required to
properly record and classify sheep slaughtered and meat products distributed.
Once again, the relevant book or books were not specified
by either Al-Mazendarany or Al-Khawarizmy. Losses were also
recorded in the books, including those due to natural disasters such as
drought.
Treasury Accounting: This was used by government and required the daily recording of
all treasury receipts and payments. It appears that monetary and non-monetary
measurements were used as recording treasury receipts
and disbursements were in cash and kind. This system would have included
inventory needed by the government and/or Sultan such as gold, silver,
medicines etc. Although there was a general requirement to record transactions
immediately applicable to all accounting systems, (see procedure number 1,
below), unlike other systems, this was specifically mentioned
as a requirement in Treasury accounting.
The Treasury accounting system required the provision of
separate columns for cash transactions. Non-cash transactions were to be classified according to their nature, color and other
specifications and then recorded in detail. The system was
also distinguished from others in that it encompassed two methods of
recording. These were the Arabian method and the Persian method. The Arabian
method required the recording of inflows of cash and goods on the right side of
the journal and outflows on the left side of the journal. This suggests that
the journal functioned as both a journal and a ledger, and this may explain the
absence of a separate ledger in this system. A separate page was
also allocated for each item (account). The fact that the majority of
bookkeepers were Arabs encouraged the use of the Arabian method. The Persian
method required two separate books, one for the inflow of cash and goods and
the other for the outflow of cash and goods. The Persian method did not require
the itemizations of inflows and outflows of cash and goods as under the Arabian
method, and this explains why the Arabian method was
considered superior.
The need for standardized information appears to have
been a priority in the design and implementation of the accounting systems. The
same system was to be applied regardless of who was in charge or of the place
of its application. Information standardization was also apparent in the
mandatory accounting reports prepared at different times. Examples of these
reports are Al-Khitmah (Monthly Report) and Al-Khitmah Al-Jame'ah
(Comprehensive Final Report), prepared annually [Al-Khawarizmy, 1984, pp. 52,
81]. Compliance with the accounting systems and the need for the generation of
reliable, standardized reports were further encouraged by the specification of
supporting documents and mandatory general recording procedures. The latter are
the subject of the ! next
section.
RECORDING PROCEDURES IN MUSLIM SOCIETY
The development and implementation of accounting systems
in the Islamic state was supported by mandatory
recording procedures. Some of these procedures were of a general nature and applied to all accounting systems while others were of a
specific nature and related to a particular system. The imposition of
zakat and hence the diverse and large amounts of revenues, expenses and related
activities of the Islamic state necessitated the establishment of control
procedures. These control procedures enabled officials to adequately monitor
activities and discover any deficit or surplus in the state treasury arising
through imbalanced books. Two cases reflecting the effectiveness of these
internal controls are worth noting here. The first was the discovery of ! a deficit of one Derham in the
Baitul Mal (Public Treasury). This was the discovery of the Sahaby (Prophet's
Companion) Amer Bin Al-Jarrah who wrote to the second Caliph, Omar bin
Al-KhattabK, informing him about the deficit16 [Lasheen, 1973, p. 13].
Al-Mazenderany [765 H, 1363 A.D.] also outlined the importance of internal
controls implemented in all Dewans. The second case was the discovery of an
unrecorded expense that resulted in a deficit. This deficit caused the
accountant to pay 1,300 Dinars for not recording the transaction. This omitted
expense was subsequently uncovered when the book balance was
compared with corresponding schedules and other balances in the main Dewan
at the end of the financial year [Lasheen, 1973, p. 13]. This also indicates
that a form of auditing was practiced after the
establishment of the Islamic state in 622 A.D.
Lasheen [1973, pp. 163-165] noted some of the common
recording procedures implemented after the 2nd century H (8th century A.D.).
Examples of recording procedures developed and applied by government
authorities and individual entrepreneurs in the Islamic state are as follows:
1. Transactions were to be recorded immediately when they
occurred.
2. Transactions were to be classified
according to their nature. This required similar and homogeneous transactions
to be classified under one account and recorded as
such.
3. Receipts were to be recorded on the right hand side of
the page and sources of receipts were to be identified and disclosed.17
4. Payments were to be recorded
and sufficiently explained on the left hand side of the page.
5. Recorded transactions were to be
carefully explained.
6. No space was to be left
between transactions. If a space was left for any
reason, a line had to be drawn across the space. This line was
called Attarkeen.
7. Corrections to recorded transactions by overwriting or
deletion were prohibited. If Al-Kateb (the
accountant/bookkeeper) had mistakenly overstated the amount, he was obliged to
pay the difference to the Dewan. If an expense was omitted,
Al-Kateb was required to pay the shortfall in cash even if it could
subsequently be proven that the expense did occur.
8. When the account was closed,
a specific sign was to be placed in the books to reflect the closure of the
account.
9. All similar transactions recorded in the preliminary
book were to be posted to the specialized books
maintained for that type transaction.
10. The posting of similar transactions was to be performed by persons independent from those who recorded
the transactions in the daily and other books.
11. The balance, called Al-Hasel (the difference between
two amounts), had to be extracted.
12. A monthly and/or yearly report was to be prepared.
This report had to be detailed and provide sufficient
information to determine, for example, incoming crops, where they came from and
how they were distributed.
13. At the end of each financial year, a report was to be prepared by Al-Kateb detailing all goods and funds under
his custody and management.
14. Annual reports prepared by Al-Kateb were to be reviewed (audited) and compared with prior year reports and
with records maintained in the main Dewan.
Procedures 1 and 2, relating to the timing of recording
and the importance of classification, could have been
initiated for the purpose of zakat. In accordance with Shari'ah
Islami'iah18 certain types of income are subject to zakat upon realization,
while assets (other than those for personal use) are subject to zakat only if
they are held for 12 months from the date of acquisition. This 12 month period is known as Al-Hawl (zakatable period). Thus
a concept of 'periodicity' has featured in Islamic accounting since the year
624 A.D. Immediate recording and classification were of prime importance for
the purpose of zakat computation on income and assets held. Assets were required to be classified by types such as equipment,
debtors, cash etc. For the pur! pose
of zakat, certain assets were required to be further classified. This was the
case with debtors. Debtors were subclassified into three categories known as
Ar-Ra'ej Men Al- Mal (collectable debts), Al-Munkaser Men Al-Mal (uncollectable
debts) and Al-Mutha'adhdher Wal Mutahayyer Wal Muta'akked Men Al- Mal
(difficult, doubtful and complicated debts) [AlKhawarizimy, 1984, p. 82]. This
sub-classification was important because only collectable debts were subject to
zakat (zakatable income).
Procedure 3 relates to credit entries while procedure
four describes debit entries. Although Heaps [1985] states that
"the ancients entered the receipts and payments of money on opposite pages
in the way of Dr. and Cr." [pp. 19-20] he does not identify these
"ancients" though they may include the Islamic state. Procedures 3
and 4 imply conformity with the "Arabian method" under the treasury
accounting system which required the recording of
inflows, "debits" on the right hand side and outflows,
"credits" on the left hand side of the page. It is possible that two
pages were used, in which debit entries were recorded
on the right page and credit entries were recorded on the left page.
Alternatively, the page was divided into two columns
for recording debi! ts and credits. This
format in the Islamic state was different from Greek and Roman practice where
the books were kept "mainly in terms of receipts and expenditure rather
than debit and credit . . . they never got as far as the habitual separation of
what we should call debit and credit entries by inserting them into separate
columns, let alone an opposite pages of an account" [de Ste Croix, 1956,
p. 14]. There is no evidence to suggest that this form of recording, as
required by procedures three and four, represents a form of double-entry
bookkeeping, but this could have been a precursor to the development of double
entry bookkeeping systems.
Procedure 5 required the careful explanation of
transactions recorded. This is likely to have been associated with the audit
requirement. Auditing was mandatory and focused on the books of account.
Al-Kalkashandy19 [1913, Vol. 1, pp. 130-139] explained the role of the reviewer
(auditor) by saying:
... it is common for a person
not to see his mistakes but can see others' errors. It is necessary for the
head of the Dewan to appoint a person to review the books. This person must
possess a high standard of the language, be hafidh [a memoriser] of the Quran,
intelligent, wise, trustworthy and neither prejudiced nor inimical. When the
reviewer is satisfied with the contents of the book being
reviewed, he should sign in the book as an indication of his
satisfaction with the contents.
Procedure 6 required that no space be
left between transactions and if a space was left for any reason, a line
was required to be drawn across the space. This reflected the risk of
misrepresentation and manipulation if blank lines or pages are
left in the accounting books. This procedure complemented procedure 1
and was designed to avoid the intentional inclusion of
transactions on dates other than their actual occurrence. It further indicates
the significance of internal controls in the Islamic state.
Another form of internal control which
complemented procedures 1 and 6 was specified in procedure 7. This
prohibited overwriting and deletion in accounting books as a means of
correcting recorded transactions. It can be interpreted
as a warning to those who did not perform their duties with care as a penalty
was imposed of the difference between the actual and recorded (overstated)
amounts of revenue as well as the shortfall in cash for unrecorded expenses.
The payment of the shortfall in cash by Al-Kateb, though harsh, appears to have
worked in practice.
Procedure 8 was intended to
prevent Al-Kateb from entering transactions after the closing date. This
procedure required 'a specific sign in the book'. The nature
of the 'specific sign' was not explained but refer to a unique mark such
as the signature of the person in charge of the Dewan (accounting department).
The requirement of this procedure further confirms the application of cut-off
and periodicity.
Procedure 9 required the posting of similar transactions
from the preliminary book to the specialized books. The posting requirement could have been initiated for the purpose of the preparation
of financial statements such as Al-Khitmah and AlKhitmah Al-Jame'ah. Although
it was not stated whether these specialized books were
specialized journals or ledgers, it is most likely that they were ledgers. The
use of specialized ledgers dates back to the fifth Caliph, Omar bin Abdul Aziz
(Omayyed Caliphate), who lived between 61 and 101 H (681-720 A.D.) and ruled
between 99 and 101 H (718-101 A.D) [Ibn Saad, 1957, Vol. 1, p. 400]. This
recording procedure could have served as an internal control procedure for the
collection and disbursement of zakat as it appe! ars
that the zakat collection and distribution were first recorded in the general
journal and then posted to the relevant specialized journals representing the
type of zakat collected or disbursed. This suggestion is supported by procedure
10 which explicitly required posting to be performed
by a person independent from the one who recorded transactions in the
preliminary book.
Recording in the general journal, and hence in the
specialized ledgers, was subject to the preparation of Ash-Shahed (journal
voucher) [Lasheen, 1973, pp. 131-132]. The existence of primary and secondary
books and the classification of transactions according to their nature suggest
that financial statements, at least in the form of an income statement, were used for decision making and for accountability with
regard to projects undertaken by the state. Al-Khitmah Al-Jame'ah
(comprehensive final report) was the form of accounting report used in the
Islamic state [Bin Jafar, 1981, p. 35]. This was similar to a contemporary
funds statement [Zaid, 2000a, p. 88]. The existence of AlKhitmah and Al-Khitmah
Al-Jame'ah indicates the possible existence of other !
financial reports and affirms the need for further research
to investigate the development of other financial statements in the Islamic
state.
Procedure 11 required the extract of Al-Hasel (the
balance). The calculation of Al-Hasel as the balance between two amounts, in
conjunction with the requirements of procedures 3, 4, 8 and 9, indicates
further that concepts of debit and credit were known and practiced by Muslim
accountants in their classification and posting of 'homogeneous transactions'.
As stated earlier, no evidence of the actual practice of double-entry
system was sighted in the research for this study although Solas and Otar
[1994, p. 134] argue that "double-entry accounting was practiced in the
Procedures 12 and 13 required Al-Kateb to prepare monthly
and annual reports. These reports represented the essence of the stewardship
function. Procedure 13 required Al-Kateb to report on "goods and funds
under his custody and management". Existing evidence indicates that these
reports were mixed format a form of income statement which also disclosed
assets [Zaid, 2000a, p. 86].
Procedure 14 reflected the importance of the audit
function described by Al-Kalkashandy20 [1913] as "the review of the books
... to check what was written in the books" [p.
130]. This procedure indicates that auditing was used
for a number of purposes, including comparison of results with budgets and
assurances about the propriety of the books.
CONCLUSION
This paper reveals that various accounting systems were developed and implemented in Muslim society to suit the needs
of the Islamic state in compliance with Shari'ah Islami'iah. Zakat was
the major factor contributing to the development of accounting systems, books,
recording procedures and reports. These accounting systems necessitated the
establishment and specification of sophisticated recording and control
procedures. Proper classification of transactions and disclosure were integral
to the various accounting systems. Monthly and yearly financial statements were
prepared on the basis of a concept of periodicity.
Budgeting also featured in the accounting systems and was
used as an internal control procedure as well as being a tool for
analyzing and interpreting the monthly and yearly financial statements.
Auditing was practiced in the Islamic state and was
mandatory.
Although these systems were designed
and implemented by government authorities, it is likely that Muslim
entrepreneurs also adopted them for the purpose of zakat. It is apparent that
some of the recording procedures developed and practiced in Muslim society were
similar to those which were later applied in medieval
1 Commonly spelt
2 This is the mandatory Islamic expression used whenever
the name of a prophet like Noah, Abraham, Ismail, Isaac, Moses, Joseph, or
Mohammad is mentioned.
3 To the north of Makkah and was originally called
"Yathreb" but the name was changed to Al-Madienah Al-Munaw'warah.
4 Zakat was a
mandatory religious levy imposed on Muslims in the year 2 H (624 A.D.). It
requires every Muslim to pay the levy on amounts exceeding certain limits. The
rate of zakat is dependent on the nature of the item subject to zakat. The term
zakat is an Arabic word meaning purification of earnings/ wealth.
5 See for example
the Quran, Chapter Al-Baqarah, 2: 282-283.
6 Hijri'iah refers
to the Islamic calendar, which began with the establishment of the Islamic
state in 622 in Al-Madienah Al-Munaw'warah (a city in present
7 Shari'ah
Islami'iah is a very broad concept comprising the divine law governing the life
of individual Muslims in their relationships with Allah, individual human
beings as well as all other beings. It is based on the Quran, Sunnah, Ijma' and
Qiyas. The Quran is the Godly book of Muslims, while the Sunnah reflects what
Prophet Mohammad [pbuh] said, did, and agreed to as preserved by his
companions. The Quran and the Sunnah are the basic two sources of Shari'ah
Islami'iah. The third source is ijma' and applied only in the absence of an
explicit answer to the issue in question. Ijma' represents the consensus of
Muslim scholars about issues that are not explicitly mentioned in the Quran or
the Sunnah. The final source is Qiyas which is represented in
the analogical deductions from the Quran, the Sunnah, and the Ijma' for
contemporary issues that are not directly mentioned in the Quran, the Sunnah,
or the Ijma' but have similar characteristics as those existed in the
past. Once a decision is made by either Ijma' or Qiyas, it becomes mandatory
and cannot be overruled by future generations [Zaid, 1997, pp. 190-197].
8 Surah Al-Baqarah 2:43, 83, 110, 177 and
277; Surah An'Nisa' 4:77 and 162; Surah Al-Ma'idah 5:12 and 55; Surah Al-A'raf
7: 156; Surah At-Taubah 9:5, 11, 18 and 71; Surah Maryam 19: 31 and 55; Surah
Al-Anbiya' 21: 73; Surah Al-Hajj 22: 41 and 78; Surah Al-Mu'minun 23: 4; Surah
An-Nur 24: 37 and 56; Surah AnNaml 27: 3; Surah Ar-Rum 30: 39; Surah Luqman
31:4; Surah Al-Ahzab 33: 33; Surah Fussilat 41: 7; Surah Al-Mujadilah 58: 13;
Surah Al-Muzzammil 73: 20; Surah Al-Bayyinah 98: 5.
9 "O ye who
believe! When you contract a debt for a fixed period, write it down. Let a
scribe write it down in justice between you. Let no scribe refuse to write as
Allah has taught him, so let him write. Let him (the debtor) who incurs the
liability dictate, and he must fear Allah, his Lord, and diminish not anything
of what he owes. But if the debtor is of poor
understanding, or weak, or is unable to dictate for himself, then let his
guardian dictate in justice. And get two witnesses out
of your own men. And if there are not two men
(available), then a man and two women, such as you agree for witness, so that
if one of them (two women) errs, the other can remind her. And
the witnesses should not refuse when they are called (for evidence). You should ! not become weary to write it
(your contract), whether it be small or big, for its fixed term, that is more
just with Allah; more solid evidence, and more convenient to prevent doubts
among yourselves, save when it is a present trade which you carry out on the
spot among yourselves, then there is no sin on you if you do not write it down.
But take witnesses whenever you make a commercial
contract. Let neither scribe nor witness suffer any harm, but if you do (such
harm), it would be wickedness in you. So be afraid of
Allah; and Allah teaches you. And Allah is the
All-Knower of each and everything [282]. And if you are on a journey and cannot
find a scribe, then let there be a pledge taken (mortgaging); then if one of
you entrust the other, let the one who is entrusted discharge his trust
(faithfully), and let him be afraid of Allah, his Lord. And
conceal not the evidence for he, who hides it, surely his heart is sinful. And
Allah is All-Knower of what you do" [283].
10 These early Muslim scholars include Imam
Ash-Shafi, 150-204 H (767-820 A.D.); Abu Obaid 156-224 H (773-839 A.D.);
Kudamah bin Ja-far, whose book was written in 306 H (919 A.D.); Al-Khawarizimi,
the author of Mafatieh Al-Uloom (Keys of Sciences) 365 H (976 A.D.); Ibn Rushd
Al-Hafied 520-595 H (1126-1199 A.D.); Al-Mazendarany, who wrote his unpublished
book in 765 H (1363 AD); Ibn Khaldoon, the author of the renowned book
Mokaddamat Ibn Khaldoon (Introduction of Ibn Khaldoon) in 779 H (1378 A.D.);
and many other scholars such as An-Nuwairi and Al-Kalkashandy.
11 The book uses the Arabic alphabet and is written in the Ottoman language. The author suggests that
Al-Mazendarany was Persian because Mazendran is a city in
12 The term Dewan was initially used
in Muslim society during the time of the second Caliph Omar bin Al-Khattab.
Dewan was renamed Jaridah. Some authorities claim that the term Dewan is an
Arabized Persian word [Lasheen, 1973, p. 26], while
Al-Kalkashandy argues that it is an Arabic word. According to Al-Kalkashandy
[1913, Vol. 1, p. 89], who wrote his book in 767 H (1366), the term Dewan is
the noun from the Arabic verb "Dawwana" (writing). This argument is
valid and was supported in the earlier writings of
An-Nahhas, the Arabic grammarian Sybaw'weh and the Muslim scholar Ibn Abbas. It
was first used to mean the book of revenues as well as
the office of recording and maintaining accounting books. At a later stage the term was restricted to mean 'offic! e' only. At present Dewan is used
in
13 Other titles like Al-Amel, Mubasher, Kateb Al-Mal were also used but AlKateb became the dominant
title and referred to any person assigned responsibility for writing and
recording information, whether of a financial or nonfinancial nature [Zaid,
2000b, p. 330].
14 The disbursement of zakat either in cash
or in kind is governed by the Quran, which requires zakat to be disbursed to
"the Fukara' (poor), Al-Masakin (the poor), and those employed to collect
the zakat, and to attract the hearts of those who have been inclined (towards
Islam), and to free the captives, and for those in debt, and for Allah's cause
(i.e. for Mujahidun - those fighting in a holy battle), and for the wayfarer (a
traveller who is cut off from everything)" [AtTaubah, 9: 60]. Zakat use to be collected and paid either in cash or kind or both,
but now it is mostly in cash. In the absence of the Islamic state, zakat is given directly by the individual zakat payers to those
stated in the pervious verse of the Quran. Some charitable
organisatio! ns and government agencies are
also involved in the collection of zakat and its distribution as mentioned in
the Quran.
15 He ruled during the period 13-23 H (634-644 A.D.).
16 It appears that this was the result of an avidit.
17This indicates that procedures 3 and 4 were not only
applicable to the treasury accounting system but were of a general nature and
applied to all accounting systems employed in the Muslim society. Furthermore,
this was in compliance with the Arabic method as
explained earlier in the "treasury accounting system".
18 See footnole No.
7.
19His handwritten book was dated 821 H (1418 A.D.).
20Al-Kalkashandy's book was actually
written in 821 H (1418 A.D.).
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