Accounting in old Islam History 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.
The religion of Islam was founded in Makkah in the year 610 A.D. With the revelation of the Quran to the Prophet Mohammad, peace be upon him. 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 M-Munaw'warah 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 beings. 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, zakat and ethical rules for conducting business and writing contracts.
Commerce extended beyond the Arabian peninsula to parts of Europe, Africa and the Far East. According to Ekelund et al : "For five centuries, from 700 to 1200 Islam led the world in power, organization, and extent of government; in social refinements and standards of living; in literature, scholarship, science, medicine, and philosophy.... It was Muslim science that preserved and developed Greek mathematics, physics, chemistry, astronomy, and medicine during this half millennium, while the West was sinking into what historians commonly call the Dark Ages".
Perhaps the most well known Islamic scholar who wrote about economics was Ib n Khaldun (1332–1406),who is considered a father of modern economics.Ibn Khaldun wrote on economic and political theory in the introduction, or Muqaddimah (Prolegomena), of his History of the World (Kitab al-Ibar). In the book, he discussed what he called asabiyya (social cohesion), which he sourced as the cause of some civilizations becoming great and others not. Ibn Khaldun felt that many social forces are cyclic, although there can be sudden sharp turns that break the pattern.His idea about the benefits of the division of labor also relate to asabiyya, the greater the social cohesion, the more complex the successful division may be, the greater the economic growth. He noted that growth and development positively stimulates both supply and demand, and that the forces of supply and demand are what determines the prices of goods.He also noted macroeconomic forces of population growth, human capital development, and technological developments effects on development.In fact, Ibn Khaldun thought that population growth was directly a function of wealth.Other important early Muslim scholars who wrote about economics include Abu Hanifah, Abu Yusuf (731-798), Ishaq bin Ali al-Rahwi (854–931), al-Farabi (873–950), Qabus (d. 1012), Ibn Sina (Avicenna) (980–1037), Ibn Miskawayh (b. 1030), al-Ghazali (1058–1111), al-Mawardi (1075–1158), Nasīr al-Dīn al-Tūsī (1201–1274), Ibn Taimiyah (1263–1328) and al-Maqrizi .
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 between 13 and 23 Hijri'iah . 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 books, systems and recording procedures. This interest was inspired by the need to comply with the requirements of Shari'ah Islami'iah.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. 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 Al-Baqarah.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 scholars 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 Al-Amel, 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". These terms equate to "accountant" and as early as 365 H (976 A.D.) Al-Khawarismy used the term "Muhasabah" for the function of accounting which indicates that the person responsible for this function is "Muhaseb" (Accountant).
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 set 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-Kateb (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 implemented 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 Al-Mazendarany. 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. Construction Accounting: This system was used to account for construction projects undertaken by government. 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. 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 . 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. 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“. 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.
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