Islamic Accounting

BASIS OF INCOME RECOGNITION FROM ISLAMIC PERSPECTIVE
Yosita Nur Wirdayanti

ABSTRACT This paper addresses the issue of basis of income recognition from Islamic perspective. In Islamic banks, income recognition is very important since it will determine amount of profit that will be distributed to depositors. Begin with accounting principles from Islamic perspective, this paper discusses the concept of accrual and cash basis and scholar opinion about this basis of accounting. Both accrual and cash basis implementation with its advantages and disadvantages also discuss in this paper. An alternative method to improve fair and just between bank and customer is proposed.

1. Introduction The growth of Islamic financial market and institution create the need for different accounting requirement. This is because Islamic Financial Institution (IFI) has distinctive features from conventional financial institution. The recording not only has to facilitate transactions happen in IFI, but also has to meet Shariah compliant. A lot of issues rose for accounting and control of IFI. One of the issues is accounting basis of income recognition.

Islamic accounting can be defined as the “accounting process” which provides appropriate information to stakeholders of an entity which will enable them to ensure that the entity is continuously operating within the bounds of the Islamic Shariah and delivering on its socioeconomic objectives. Islamic accounting is also a tool, which enables Muslims to evaluate their own accountabilities to God (in respect of interhuman/environmental transactions).1

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Shahul Hameed, Accounting and Auditing for Islamic Financial Institution, page.2

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In conventional banks, how they recognise the income does not affect the distribution profit to the depositor. They use interest mechanism, give interest to depositor and receive interest from debtor. Unlike conventional banks, Islamic bank are not operated with interest mechanism. It is

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