Bank reconciliation statement
A company's general ledger account Cash contains a record of the transactions (checks written, receipts from customers, etc.) that involve its checking account. The bank also creates a record of the company's checking account when it processes the company's checks, deposits, service charges, and other items. Soon after each month ends the bank usually mails a bank statement to the company. The bank statement lists the activity in the bank account during the recent month as well as the balance in the bank account.
When the company receives its bank statement, the company should verify that the amounts on the bank statement are consistent or compatible with the amounts in the company's Cash account in its general ledger and vice versa. This process of confirming the amounts is referred to as reconciling the bank statement, bank statement reconciliation, bank reconciliation, or doing a "bank rec." The benefit of reconciling the bank statement is knowing that the amount of Cash reported by the company (company's books) is consistent with the amount of cash shown in the bank's records.
Because most companies write hundreds of checks each month and make many deposits, reconciling the amounts on the company's books with the amounts on the bank statement can be time consuming. The process is complicated because some items appear in the company's Cash account in one month, but appear on the bank statement in a different month. For example, checks written near the end of August are deducted immediately on the company's books, but those checks will likely clear the bank account in early September. Sometimes the bank decreases the company's bank account without informing the company of the amount. For example, a bank service charge might be deducted on the bank statement on August 31, but the company will not learn of the amount until the company receives the bank statement in early September. From these two examples, you can understand why there will likely be a difference in the balance on the bank statement vs. the balance in the Cash account on the company's books. It is also possible (perhaps likely) that neither balance is the true balance. Both balances may need adjustment in order to report the true amount of cash.
After you adjust the balance per bank to be the true balance and after you adjust the balance per books to also be the same true balance, you have reconciled the bank statement. Most accountants would simply say that you have done the bank reconciliation or the bank rec.
Example:
In this part we will provide you with a sample bank reconciliation including the required journal entries. We will assume that a company has the following information:
1. The bank statement for August 2008 shows an ending balance of $3,490.
2. On August 31 the bank statement shows charges of $35 for the service charge for maintaining the checking account.
3. On August 28 the bank statement shows a return item of $100 plus a related bank fee of $10. The return item is a customer's check that was returned because of insufficient funds. The check was also marked "do not redeposit.
4. The bank statement shows a charge of $80 for check printing on August 20.
5. The bank statement shows that $8 was added to the checking account on August 31 for interest earned by the company during the month of August.
6. The bank statement shows that a note receivable of $1,000 was collected by the bank on August 29 and was deposited into the company's account. On the same day, the bank withdrew $40 from the company's account as a fee for collecting the note receivable.
7. The company's Cash account at the end of August shows a balance of $967.
8. During the month of August the company wrote checks totaling more than $50,000. As of August 31 $3,021 of the checks written in August had not yet cleared the bank and $200 of checks written in June had not yet cleared the bank.
9. The $1,450 of cash received by the company on August 31 was recorded on the company's books as of August 31. However, the $1,450 of cash receipts was deposited at the bank on the morning of September 1.
10. On August 29 the company's Cash account shows cash sales of $145. The bank statement shows the amount deposited was actually $154. The company reviewed the transactions and found that $154 was the correct amount.
Saturday, April 18, 2009
Depreciation policies and proceadures
Depreciation policies and proceadures
Section 1. General. It is the purpose of this administrative regulation to provide the method for determining the appropriateness of telephone utility depreciation rates and methods. It is also the purpose of this administrative regulation to provide for frequent reviews of depreciation rates to avoid under- and overaccruals.
Section 2. Definitions. (1) "Commission" means the Kentucky Public Service Commission.
(2) "Accumulated provision for depreciation" or "depreciation reserve" means an account containing the net balance of the accumulated depreciation accruals less the retirements from the depreciable plant accounts, plus the gross salvage realized from the disposition of retired plant, less the cost of removal associated with the disposition of retired plant, when using net salvage, less adjustments/entries permitted by the Federal Communications Commission's Uniform System of Accounts.
(3) "Annual provision for depreciation accrual" means the annual amount of depreciation charged to expenses and/or clearing accounts.
(4) "Cost of removal" means the cost of demolishing, dismantling, removing, tearing down or abandoning of physical assets, including the cost of transportation and handling incidental thereto.
(5) "Depreciation," as applied to depreciable utility plant, means the loss in service value not restored by current maintenance, incurred in connection with the consumption or prospective retirement of utility plant in the course of service from causes which are known to be in current operation and against which the utility is not protected by insurance. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities.
(6) "Future net salvage" means an estimate of the net salvage realized from the future retirement of property now in service.
(7) "Net salvage" means salvage of property retired less the cost of removal.
(8) "Original cost" means the actual money cost of property at the time it was first dedicated to the public use whether by the accounting utility or by predecessors.
(9) "Remaining life" means the future expected service in years of the survivors at a given age.
(10) "Remaining life technique" means the technique of calculating a depreciation rate based on the unrecovered plant balance less average future net salvage over the average remaining life. The formula for calculating a remaining life rate is:
100% - reserve % -
Remaining Life Rate =
average future net salvage %
average remaining life in years
(11) "Gross salvage" means the amount received for property retired, if sold, or if retained for reuse, the amount at which the materials recovered are chargeable to materials and supplies, or other appropriate accounts.
(12) "Straight-line average service life method" means the method which seeks to recover the original cost of depreciable property, minus net salvage, over the average service life of the property.
(13) "Straight-line remaining life method" means the method which seeks to recover the undepreciated original cost of depreciable property, minus any future net salvage, over the remaining life of the property.
(14) "Service value" means the difference between original cost and net salvage value of utility plant.
(15) "Average service life" means the average expected life of all units of a group when new and is determined as the weighted dollar average of the lives of the units. It is equal to the area under the survivor curve divided by original placements.
(16) "Whole life technique" means the technique of calculating a depreciation rate based on the average service life and the average net salvage. Both life and salvage components are the estimated or calculated composite of realized experience and expected activity. The formula for calculating a whole life rate is:
Whole life rate =
100% - average net salvage%
average service life in years
(17) "Vintage group procedure" means the procedure which treats the same type of property placed in service during the same year as a distinct group for depreciation purposes.
(18) "Equal life group procedure" means the procedure in which vintage groups are divided into subgroups for depreciation purposes, each of which is expected to live an equal life.
Section 3. Applicability. This administrative regulation shall apply to all telephone utilities subject to the jurisdiction of the commission, except for telephone utilities also subject to Federal Communications Commission jurisdiction.
Section 4. General Provisions. (1) All telephone utilities shall maintain, and have available for inspection by the commission upon request, adequate records related to the depreciation practices as defined herein, except for those utilities utilizing Section 8 of this administrative regulation.
(2) Each utility has the responsibility of proposing the depreciation rates and methods that will be used. This administrative regulation contemplates the use of straight-line, whole life rates and straight-line, remaining life rates. All rates and methods shall be proposed to be effective on the January 1st following the utility's application as specified in Section 5 of this administrative regulation.
(3) Certified rates and methods are binding on all future rate proceedings and will remain in effect until the next certification, except upon special request, to be determined by the commission.
(4) Depreciation certification studies shall be made periodically. All depreciable plant accounts shall have been reviewed no more frequently than every three (3) years.
Section 5. Filing Requirements: Depreciation Certification Studies. (1) Initially and not less than every three (3) years thereafter each telephone utility may file an application for depreciation certification and the data described in the following paragraphs on or before the July 1st prior to the January 1st effective date.
(2) Each application shall contain the following:
(a) A schedule showing for each class and subclass of plant (whether or not the depreciation rate is proposed to be changed) an appropriate designation therefor, the depreciation rate currently in effect, the proposed rate, and the service-life and net-salvage estimates underlying both the current and proposed depreciation rates. If the utility proposes to use the remaining life technique, the schedule shall also contain remaining service-life and future net-salvage estimates, reserve percentage, and remaining life rates derived therefrom.
(b) An additional schedule showing for each class and subclass, as well as the totals for all depreciable plant:
1. The book cost of plant at the most recent date available;
2. The estimated amount of depreciation accruals determined by applying the currently effective rate to the amount of such book cost;
3. The estimated amount of depreciation accruals determined by applying the rate proposed to be used to the amount of such book cost; and
4. The difference between the amounts determined in subparagraphs 2 and 3 of this paragraph;
(c) A statement giving the reasons for the proposed change in each rate;
(d) A statement describing the method or methods employed in the development of the service life and salvage estimates underlying each proposed change in a depreciation rate; and
(e) The date as of which the revised rates are proposed to be made effective in the accounts.
(f) When the change in the depreciation rate proposed for any class or subclass of plant (other than one occasioned solely by a shift in the relative investment in the several subclasses of the class of plant) amounts to twenty (20) percent or more of the rate currently applied thereto, or when the proposed change will produce an increase or decrease of one (1) percent or more of the aggregate depreciation charges for all depreciable plant (based on the amounts determined in compliance with paragraph (b) of this subsection), the data required by paragraphs (a), (b), (c), (d), and (e) of this subsection shall be supplemented by copies of the underlying studies, including calculations and charts, developed by the utility to support service-life and net-salvage estimates (remaining service-life and future net-salvage estimates if applicable); provided, however, that if compliance with this requirement involves submission of a large volume of data of a repetitive nature, only a fully illustrative portion thereof need be filed.
(g) Each report shall be filed in duplicate and the original shall be signed by the responsible official to whom correspondence related thereto shall be addressed.
(h) In no event shall a utility for which the commission has prescribed depreciation rates make any changes in such rates unless the changes are prescribed by the commission.
(i) Any changes in depreciation rates that are made under the provisions of Section 4 of this administrative regulation shall not be construed as having been approved by the commission unless the utility has been specifically so informed.
Section 6. Prescribed Methods: Depreciation Certification Studies. (1) The commission prescribes the straight-line method and the whole life technique or remaining life technique utilizing the vintage group or equal life group procedures for calculating depreciation accruals.
(2) No specific methods are prescribed by the commission for estimating service lives and salvage values, including remaining life and future net salvage values.
(3) Any exceptions to these methods will require specific justification and approval by the commission.
Section 7. Filing Procedures. (1) Telephone utilities may apply no more frequently than every three (3) years to the commission for changes in depreciation rates and methods in accordance with this administrative regulation, except for those utilities which may use the average schedule as defined in Section 8 of this administrative regulation. Utilities may propose interim studies of particular accounts prior to the minimum three (3) year period allowed by this administrative regulation; however, the commission shall have binding discretion as to whether the studies will be considered.
(2) The commission shall schedule conferences with the utilities to review the utilities' proposed rates and methods. In the event that a disagreement concerning a proposed depreciation rate (or rates) and underlying studies cannot be agreed to by both the utility and the commission, the prior rate (or rates) shall remain in effect until the next certification or until the commission shall determine otherwise.
(3) After review by the commission as outlined in subsection (2) of this section, and prior to certification by the commission, a public notice will be issued by the utility allowing twenty (20) days for comments by any interested parties.
(4) In the event the commission has not issued a certification order by December 1 following the application, the commission may issue a letter to the utility authorizing interim booking effective on the following January 1, of the rates agreed upon until the commission issues its final order.
Section 8. Average Schedule. For those telephone utilities not having adequate records or staff to perform the studies specified in this administrative regulation, the commission will issue a proposed average schedule each year. Utilities may either elect to accept the proposed schedule, to be effective January 1 following its issuance, or may reject it, in which case their existing depreciation rates will remain in effect until the next average schedule is proposed. The average schedule for a particular utility will remain in effect for three (3) years upon acceptance by that utility. In the event that a utility elects to utilize a proposed average schedule but because circumstances unique to that utility require a deviation for a particular account (or accounts), the utility may file studies as outlined in Section 5 of this administrative regulation for that account (or accounts).
Section 9. Deviations from Rules. In special cases, for good cause shown, the commission may permit deviation from these rules. (9 Ky.R. 1076; Am. 1198; eff. 4-6-83.)
Section 1. General. It is the purpose of this administrative regulation to provide the method for determining the appropriateness of telephone utility depreciation rates and methods. It is also the purpose of this administrative regulation to provide for frequent reviews of depreciation rates to avoid under- and overaccruals.
Section 2. Definitions. (1) "Commission" means the Kentucky Public Service Commission.
(2) "Accumulated provision for depreciation" or "depreciation reserve" means an account containing the net balance of the accumulated depreciation accruals less the retirements from the depreciable plant accounts, plus the gross salvage realized from the disposition of retired plant, less the cost of removal associated with the disposition of retired plant, when using net salvage, less adjustments/entries permitted by the Federal Communications Commission's Uniform System of Accounts.
(3) "Annual provision for depreciation accrual" means the annual amount of depreciation charged to expenses and/or clearing accounts.
(4) "Cost of removal" means the cost of demolishing, dismantling, removing, tearing down or abandoning of physical assets, including the cost of transportation and handling incidental thereto.
(5) "Depreciation," as applied to depreciable utility plant, means the loss in service value not restored by current maintenance, incurred in connection with the consumption or prospective retirement of utility plant in the course of service from causes which are known to be in current operation and against which the utility is not protected by insurance. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities.
(6) "Future net salvage" means an estimate of the net salvage realized from the future retirement of property now in service.
(7) "Net salvage" means salvage of property retired less the cost of removal.
(8) "Original cost" means the actual money cost of property at the time it was first dedicated to the public use whether by the accounting utility or by predecessors.
(9) "Remaining life" means the future expected service in years of the survivors at a given age.
(10) "Remaining life technique" means the technique of calculating a depreciation rate based on the unrecovered plant balance less average future net salvage over the average remaining life. The formula for calculating a remaining life rate is:
100% - reserve % -
Remaining Life Rate =
average future net salvage %
average remaining life in years
(11) "Gross salvage" means the amount received for property retired, if sold, or if retained for reuse, the amount at which the materials recovered are chargeable to materials and supplies, or other appropriate accounts.
(12) "Straight-line average service life method" means the method which seeks to recover the original cost of depreciable property, minus net salvage, over the average service life of the property.
(13) "Straight-line remaining life method" means the method which seeks to recover the undepreciated original cost of depreciable property, minus any future net salvage, over the remaining life of the property.
(14) "Service value" means the difference between original cost and net salvage value of utility plant.
(15) "Average service life" means the average expected life of all units of a group when new and is determined as the weighted dollar average of the lives of the units. It is equal to the area under the survivor curve divided by original placements.
(16) "Whole life technique" means the technique of calculating a depreciation rate based on the average service life and the average net salvage. Both life and salvage components are the estimated or calculated composite of realized experience and expected activity. The formula for calculating a whole life rate is:
Whole life rate =
100% - average net salvage%
average service life in years
(17) "Vintage group procedure" means the procedure which treats the same type of property placed in service during the same year as a distinct group for depreciation purposes.
(18) "Equal life group procedure" means the procedure in which vintage groups are divided into subgroups for depreciation purposes, each of which is expected to live an equal life.
Section 3. Applicability. This administrative regulation shall apply to all telephone utilities subject to the jurisdiction of the commission, except for telephone utilities also subject to Federal Communications Commission jurisdiction.
Section 4. General Provisions. (1) All telephone utilities shall maintain, and have available for inspection by the commission upon request, adequate records related to the depreciation practices as defined herein, except for those utilities utilizing Section 8 of this administrative regulation.
(2) Each utility has the responsibility of proposing the depreciation rates and methods that will be used. This administrative regulation contemplates the use of straight-line, whole life rates and straight-line, remaining life rates. All rates and methods shall be proposed to be effective on the January 1st following the utility's application as specified in Section 5 of this administrative regulation.
(3) Certified rates and methods are binding on all future rate proceedings and will remain in effect until the next certification, except upon special request, to be determined by the commission.
(4) Depreciation certification studies shall be made periodically. All depreciable plant accounts shall have been reviewed no more frequently than every three (3) years.
Section 5. Filing Requirements: Depreciation Certification Studies. (1) Initially and not less than every three (3) years thereafter each telephone utility may file an application for depreciation certification and the data described in the following paragraphs on or before the July 1st prior to the January 1st effective date.
(2) Each application shall contain the following:
(a) A schedule showing for each class and subclass of plant (whether or not the depreciation rate is proposed to be changed) an appropriate designation therefor, the depreciation rate currently in effect, the proposed rate, and the service-life and net-salvage estimates underlying both the current and proposed depreciation rates. If the utility proposes to use the remaining life technique, the schedule shall also contain remaining service-life and future net-salvage estimates, reserve percentage, and remaining life rates derived therefrom.
(b) An additional schedule showing for each class and subclass, as well as the totals for all depreciable plant:
1. The book cost of plant at the most recent date available;
2. The estimated amount of depreciation accruals determined by applying the currently effective rate to the amount of such book cost;
3. The estimated amount of depreciation accruals determined by applying the rate proposed to be used to the amount of such book cost; and
4. The difference between the amounts determined in subparagraphs 2 and 3 of this paragraph;
(c) A statement giving the reasons for the proposed change in each rate;
(d) A statement describing the method or methods employed in the development of the service life and salvage estimates underlying each proposed change in a depreciation rate; and
(e) The date as of which the revised rates are proposed to be made effective in the accounts.
(f) When the change in the depreciation rate proposed for any class or subclass of plant (other than one occasioned solely by a shift in the relative investment in the several subclasses of the class of plant) amounts to twenty (20) percent or more of the rate currently applied thereto, or when the proposed change will produce an increase or decrease of one (1) percent or more of the aggregate depreciation charges for all depreciable plant (based on the amounts determined in compliance with paragraph (b) of this subsection), the data required by paragraphs (a), (b), (c), (d), and (e) of this subsection shall be supplemented by copies of the underlying studies, including calculations and charts, developed by the utility to support service-life and net-salvage estimates (remaining service-life and future net-salvage estimates if applicable); provided, however, that if compliance with this requirement involves submission of a large volume of data of a repetitive nature, only a fully illustrative portion thereof need be filed.
(g) Each report shall be filed in duplicate and the original shall be signed by the responsible official to whom correspondence related thereto shall be addressed.
(h) In no event shall a utility for which the commission has prescribed depreciation rates make any changes in such rates unless the changes are prescribed by the commission.
(i) Any changes in depreciation rates that are made under the provisions of Section 4 of this administrative regulation shall not be construed as having been approved by the commission unless the utility has been specifically so informed.
Section 6. Prescribed Methods: Depreciation Certification Studies. (1) The commission prescribes the straight-line method and the whole life technique or remaining life technique utilizing the vintage group or equal life group procedures for calculating depreciation accruals.
(2) No specific methods are prescribed by the commission for estimating service lives and salvage values, including remaining life and future net salvage values.
(3) Any exceptions to these methods will require specific justification and approval by the commission.
Section 7. Filing Procedures. (1) Telephone utilities may apply no more frequently than every three (3) years to the commission for changes in depreciation rates and methods in accordance with this administrative regulation, except for those utilities which may use the average schedule as defined in Section 8 of this administrative regulation. Utilities may propose interim studies of particular accounts prior to the minimum three (3) year period allowed by this administrative regulation; however, the commission shall have binding discretion as to whether the studies will be considered.
(2) The commission shall schedule conferences with the utilities to review the utilities' proposed rates and methods. In the event that a disagreement concerning a proposed depreciation rate (or rates) and underlying studies cannot be agreed to by both the utility and the commission, the prior rate (or rates) shall remain in effect until the next certification or until the commission shall determine otherwise.
(3) After review by the commission as outlined in subsection (2) of this section, and prior to certification by the commission, a public notice will be issued by the utility allowing twenty (20) days for comments by any interested parties.
(4) In the event the commission has not issued a certification order by December 1 following the application, the commission may issue a letter to the utility authorizing interim booking effective on the following January 1, of the rates agreed upon until the commission issues its final order.
Section 8. Average Schedule. For those telephone utilities not having adequate records or staff to perform the studies specified in this administrative regulation, the commission will issue a proposed average schedule each year. Utilities may either elect to accept the proposed schedule, to be effective January 1 following its issuance, or may reject it, in which case their existing depreciation rates will remain in effect until the next average schedule is proposed. The average schedule for a particular utility will remain in effect for three (3) years upon acceptance by that utility. In the event that a utility elects to utilize a proposed average schedule but because circumstances unique to that utility require a deviation for a particular account (or accounts), the utility may file studies as outlined in Section 5 of this administrative regulation for that account (or accounts).
Section 9. Deviations from Rules. In special cases, for good cause shown, the commission may permit deviation from these rules. (9 Ky.R. 1076; Am. 1198; eff. 4-6-83.)
Thursday, April 16, 2009
Mobile secret codes
Mobile secret codes
On the main screen type in:*#06# for checking the IMEI (International Mobile Equipment Identity).*#7780# reset to factory settings.*#67705646# This will clear the LCD display(operator logo).*#0000# To view software version.*#2820# Bluetooth device address.*#746025625# Sim clock allowed status.#pw+1234567890+1# Shows if sim have restrictions.*#92702689# - takes you to a secret menu where you may find some of the information below:1. Displays Serial Number.2. Displays the Month and Year of Manufacture3. Displays (if there) the date where the phone was purchased (MMYY)4. Displays the date of the last repair - if found (0000)5. Shows life timer of phone (time passes since last start)*#3370# - Enhanced Full Rate Codec (EFR) activation. Increase signal strength, better signal reception. It also help if u want to use GPRS and the service is not responding or too slow. Phone battery will drain faster though.*#3370* - (EFR) deactivation. Phone will automatically restart. Increase battery life by 30% because phone receives less signal from network.*#4720# - Half Rate Codec activation.*#4720* - Half Rate Codec deactivation. The phone will automatically restartIf you forgot wallet code for Nokia S60 phone, use this code reset: *#7370925538#Note, your data in the wallet will be erased. Phone will ask you the lock code. Default lock code is: 12345Press *#3925538# to delete the contents and code of wallet.Unlock service provider: Insert sim, turn phone on and press vol up(arrow keys) for 3 seconds, should say pin code. Press C,then press * message should flash, press * again and 04*pin*pin*pin# \*#7328748263373738# resets security code.Default security code is 12345Change closed caller group (settings >security settings>user groups) to 00000 and ure phone will sound the message tone when you are near a radar speed trap. Setting it to 500 will cause your phone 2 set off security alarms at shop exits, gr8 for practical jokes! (works with some of the Nokia phones.) Press and hold "0" on the main screen to open wap browser
Nokia Code function*3370# This Nokia code activates Enhanced Full Rate Codec (EFR) - Your Nokia cell phone uses the best sound quality but talk time is reduced my approx. 5%#3370# Deactivate Enhanced Full Rate Codec (EFR)*#4720# Activate Half Rate Codec - Your phone uses a lower quality sound but you should gain approx 30% more Talk Time*#4720# With this Nokia code you can deactivate the Half Rate Codec*#0000# Displays your phones software version, 1st Line : Software Version, 2nd Line : Software Release Date, 3rd Line : Compression Type*#9999# Phones software version if *#0000# does not work*#06# For checking the International Mobile Equipment Identity (IMEI Number)#pw+1234567890+1# Provider Lock Status. (use the "*" button to obtain the "p,w" and "+" symbols)#pw+1234567890+2# Network Lock Status. (use the "*" button to obtain the "p,w" and "+" symbols)#pw+1234567890+3# Country Lock Status. (use the "*" button to obtain the "p,w" and "+" symbols)#pw+1234567890+4# SIM Card Lock Status. (use the "*" button to obtain the "p,w" and "+" symbols)*#147# This lets you know who called you last (Only vodofone)*#1471# Last call (Only vodofone)*#21# This phone code allows you to check the number that "All Calls" are diverted to*#2640# Displays phone security code in use*#30# Lets you see the private number*#43# Allows you to check the "Call Waiting" status of your cell phone.*#61# Allows you to check the number that "On No Reply" calls are diverted to*#62# Allows you to check the number that "Divert If Unreachable (no service)" calls are diverted to*#67# Allows you to check the number that "On Busy Calls" are diverted to*#67705646# Phone code that removes operator logo on 3310 & 3330*#73# Reset phone timers and game scores*#746025625# Displays the SIM Clock status, if your phone supports this power saving feature "SIM Clock Stop Allowed", it means you will get the best standby time possible*#7760# Manufactures code*#7780# Restore factory settings*#8110# Software version for the nokia 8110*#92702689# Displays - 1.Serial Number, 2.Date Made, 3.Purchase Date, 4.Date of last repair (0000 for no repairs), 5.Transfer User Data. To exit this mode you need to switch your phone off then on again*#94870345123456789# Deactivate the PWM-Mem**21*number# Turn on "All Calls" diverting to the phone number entered**61*number# Turn on "No Reply" diverting to the phone number entered**67*number# Turn on "On Busy" diverting to the phone number entered12345 This is the default security codepress and hold # Lets you switch between lines
Nokia 7610Panasonic X700Panasonic X800
nokia phones service codes
*#0000# - SW version*#06# - IMEI*#war0anty# - SIMLOCK info*3370# - Enhanced Full Rate ON#3370# - OFF*4720# - alternative sound quality codec ON#4720# - OFF*#7780# - default factory settings*#7760# - production serial no. *#2820# - Bluetooth info. *#73# - reset phone timers and game scores. *#7370925538# - delete all the content of the wallet and the wallet code. *#7370# - soft format — erases all telephone memory. [Green]*3 - hard format — if only the telephone memory is formatted, puts back the attitudes and reboots *#delset# - MMS/GPRS settings removal
Nokia Code function*3370# This Nokia code activates Enhanced Full Rate Codec (EFR) - Your Nokia cell phone uses the best sound quality but talk time is reduced my approx. 5%#3370# Deactivate Enhanced Full Rate Codec (EFR)*#4720# Activate Half Rate Codec - Your phone uses a lower quality sound but you should gain approx 30% more Talk Time*#4720# With this Nokia code you can deactivate the Half Rate Codec*#0000# Displays your phones software version, 1st Line : Software Version, 2nd Line : Software Release Date, 3rd Line : Compression Type*#9999# Phones software version if *#0000# does not work*#06# For checking the International Mobile Equipment Identity (IMEI Number)#pw+1234567890+1# Provider Lock Status. (use the "*" button to obtain the "p,w" and "+" symbols)#pw+1234567890+2# Network Lock Status. (use the "*" button to obtain the "p,w" and "+" symbols)#pw+1234567890+3# Country Lock Status. (use the "*" button to obtain the "p,w" and "+" symbols)#pw+1234567890+4# SIM Card Lock Status. (use the "*" button to obtain the "p,w" and "+" symbols)*#147# This lets you know who called you last (Only vodofone)*#1471# Last call (Only vodofone)*#21# This phone code allows you to check the number that "All Calls" are diverted to*#2640# Displays phone security code in use*#30# Lets you see the private number*#43# Allows you to check the "Call Waiting" status of your cell phone.*#61# Allows you to check the number that "On No Reply" calls are diverted to*#62# Allows you to check the number that "Divert If Unreachable (no service)" calls are diverted to*#67# Allows you to check the number that "On Busy Calls" are diverted to*#67705646# Phone code that removes operator logo on 3310 & 3330*#73# Reset phone timers and game scores*#746025625# Displays the SIM Clock status, if your phone supports this power saving feature "SIM Clock Stop Allowed", it means you will get the best standby time possible*#7760# Manufactures code*#7780# Restore factory settings*#8110# Software version for the nokia 8110*#92702689# Displays - 1.Serial Number, 2.Date Made, 3.Purchase Date, 4.Date of last repair (0000 for no repairs), 5.Transfer User Data. To exit this mode you need to switch your phone off then on again*#94870345123456789# Deactivate the PWM-Mem**21*number# Turn on "All Calls" diverting to the phone number entered**61*number# Turn on "No Reply" diverting to the phone number entered**67*number# Turn on "On Busy" diverting to the phone number entered12345 This is the default security codepress and hold # Lets you switch between lines
Nokia 7610Panasonic X700Panasonic X800
nokia phones service codes
*#0000# - SW version*#06# - IMEI*#war0anty# - SIMLOCK info*3370# - Enhanced Full Rate ON#3370# - OFF*4720# - alternative sound quality codec ON#4720# - OFF*#7780# - default factory settings*#7760# - production serial no. *#2820# - Bluetooth info. *#73# - reset phone timers and game scores. *#7370925538# - delete all the content of the wallet and the wallet code. *#7370# - soft format — erases all telephone memory. [Green]*3 - hard format — if only the telephone memory is formatted, puts back the attitudes and reboots *#delset# - MMS/GPRS settings removal
Types of Computer Expansion Slots
Types of Computer Expansion Slots
Expansion slots are located on the motherboard, and openings on the back of the computer allow the ports on the cards that go in the slots to be accessed.
The picture below shows the SoundBlaster Live sound card, with additional ports attached to it through an IDE cable. There are several types of expansion slots, including AGP, PCIe (also known as PCIexpress), PCI, and ISA.
The photo above is a picture of a PCI expansion slot, the most common expansion slot. PCI slots can handle 64 bits of data at a time, twice as fast as ISA slots, which can only handle 32 bits of data at a time. PCI is an abbreviation for "Peripheral Component Interconnect." A 64-bit PCI slot has 64 connections to the motherboard, and each connection is capable of handling 1 bit of data at a time. A 32-bit ISA slot has 32 connections to the motherboard, each handling one bit of data at a time. (Note: Older technology ISA slots are 8-bit and 16-bit. The newer EISA, (or Extended ISA), slots are capable of 32-bit data transfer. Older PCI technology is 32-bit. The newer PCI technology is 64-bit.)
The diagram below shows how to properly insert a PCI card into an empty PCI expansion slot.
As technology changes, new expansion cards become available. These include video cards, which allow a monitor to be connected to the computer, sound cards, which allow speakers and a microphone to be connected to the computer, and networking cards, which allow computers to be linked together. There are also many other types of expansion cards. Below is a photograph of a Promise PCI expansion card. It allows you to connect up to four additional drives to your computer with IDE cables. This expansion card provides data transfer rates of up to 66,000,000 bits per second, (or 66Mbs/sec). This technology is also known as Ultra ATA/66. ATA is an abbreviation for "Advanced Technology Attachment." Ultra ATA/66 is also known as Ultra DMA/66. DMA is an abbreviation for "Direct Memory Access." Ultra DMA/66 devices can directly access the RAM, transferring 66 million bits of data per second.
Expansion slots are located on the motherboard, and openings on the back of the computer allow the ports on the cards that go in the slots to be accessed.The picture below shows the SoundBlaster Live sound card, with additional ports attached to it through an IDE cable. There are several types of expansion slots, including AGP, PCIe (also known as PCIexpress), PCI, and ISA.
The top card of the SoundBlaster Live sound card plugs into a PCI expansion slot, while the bottom card sends and receives its data to and from the larger card through an IDE cable. The smaller card simply needs an empty spot in the case to be mounted to. It does not need to be placed into an expansion slot on the motherboard.
Types of Expansion Slots:
ISA
AGP
PCI
PCIe, which is short for PCIexpress
ISA Slots
ISA slots are an older type of expansion slot, twice as big as PCI slots and slower than PCI slots as well. ISA slots are usually black, while PCI slots are usually white. ISA slots are not used much anymore, but most computers still have at least one of them.
ISA networking cards, ISA sound cards, ISA video cards, and other types of ISA expansion cards can be used in the ISA slots.
PCI Slots
Types of Expansion Slots:
ISA
AGP
PCI
PCIe, which is short for PCIexpress
ISA Slots
ISA slots are an older type of expansion slot, twice as big as PCI slots and slower than PCI slots as well. ISA slots are usually black, while PCI slots are usually white. ISA slots are not used much anymore, but most computers still have at least one of them.
ISA networking cards, ISA sound cards, ISA video cards, and other types of ISA expansion cards can be used in the ISA slots.
PCI Slots
The photo above is a picture of a PCI expansion slot, the most common expansion slot. PCI slots can handle 64 bits of data at a time, twice as fast as ISA slots, which can only handle 32 bits of data at a time. PCI is an abbreviation for "Peripheral Component Interconnect." A 64-bit PCI slot has 64 connections to the motherboard, and each connection is capable of handling 1 bit of data at a time. A 32-bit ISA slot has 32 connections to the motherboard, each handling one bit of data at a time. (Note: Older technology ISA slots are 8-bit and 16-bit. The newer EISA, (or Extended ISA), slots are capable of 32-bit data transfer. Older PCI technology is 32-bit. The newer PCI technology is 64-bit.)The diagram below shows how to properly insert a PCI card into an empty PCI expansion slot.
As technology changes, new expansion cards become available. These include video cards, which allow a monitor to be connected to the computer, sound cards, which allow speakers and a microphone to be connected to the computer, and networking cards, which allow computers to be linked together. There are also many other types of expansion cards. Below is a photograph of a Promise PCI expansion card. It allows you to connect up to four additional drives to your computer with IDE cables. This expansion card provides data transfer rates of up to 66,000,000 bits per second, (or 66Mbs/sec). This technology is also known as Ultra ATA/66. ATA is an abbreviation for "Advanced Technology Attachment." Ultra ATA/66 is also known as Ultra DMA/66. DMA is an abbreviation for "Direct Memory Access." Ultra DMA/66 devices can directly access the RAM, transferring 66 million bits of data per second.
Below is a picture of Creative Lab’s Sound Blaster Live Value PCI sound card. A sound card is what processes sound and allows speakers and a microphone to be hooked up to the computer. When you hear music coming from your computer's speakers, the sound card's digital signal processor, also known as the DSP, is working together with the digital-to-analog converter, also known as the DAC, processing and converting digital sound data (electrical pulses represented by binary code) to analog sound data (increases and decreases in electrical pulses that the speaker interprets and generates as increases and decreases in tone, frequency, and volume.) 
When you talk into your computer's microphone, the sound card's digital signal processor works along with the analog-to-digital converter to process and convert analog sound data to digital sound data, which can be saved onto your computers memory. Record players are analog – they are made of tiny engravings that the needle moves through, that move back and forth in a wave shape to change the frequency of the sound. Computers, however, are digital. A music file stored on a computer hard drive is stored as a series of positive and negatively (north and south) magnetically charged sectors on the hard drive. These are represented by 1s and 0s in what is called binary code. Different sequences of these magnetic charges instruct the computer to perform different tasks, and in this case, tell the computer what frequencies and volumes to play when playing the music file.
Better sound cards have better sound, however, you can save a ton of money by just buying a mediocre sound card online (I recommend www.newegg.com for those interested in buying computer parts – there’s even better deals on neweggs older website, just click on “Newegg Old Version” or something like that at the top right hand corner of the homepage of newegg.com) The Sound Blaster Live Value card allows you to connect a sound input device, like a CD-Player or radio, a microphone, front speakers, rear speakers, and a joystick or MIDI instrument, like an MIDI keyboard. The front and rear speakers can be combined together to produce stereo surround sound. Just like the video card, the sound card uses its own little processor to process sound data.
Below is a picture of a SCSI (pronounced “sscuhzy”) PCI expansion card. SCSI is an abbreviation for "Small Computer Interface System." With a SCSI expansion card, you can connect up to fifteen devices to one SCSI connection. SCSI is one of the fastest data transfer interfaces there is. SCSI cards are available with transfer rates up to 320 MB per second! The Ultra320 SCSI-3 interface is the fastest SCSI interface, with a 320MB/sec data transfer rate! Below is a picture of a PCI SCSI expansion card.
AGP Slots
The AGP expansion slot connects AGP video cards to the motherboard. The video card shown above is an AGP GeForce FX 5500. Video cards are also known as graphics cards. They process video and image data that will be displayed on your screen. The monitor plugs into the video card. AGP is an abbreviation for Accelerated Graphics Port. Most AGP video cards are capable of a higher data transfer rate than PCI video cards. Video cards, like the one shown above, simply plug into an AGP slot and connect a monitor or other video display device to a computer, usually through the VGA port. The video card shown above has three different ports, for three different types of monitors. The "DVI Out" connector connects to a “digital video display”. DVI is an abbreviation for Digital Video Interface. Video cards with a TV output connection are capable of displaying a computer's video on a television instead of a computer monitor, which is great for playing movies on your computer. Unfortunately, most televisions only support a very low resolution and refresh rate when hooked up to computers. Video cards with a TV input connection are able of displaying a television's video on a computer. This allows you to record television programs onto your computers hard drive. The VGA connection is the standard connection to most monitors.
The quality of the display depends mostly on the type of video card, but also on the type of monitor. There are many factors in determining how good a video card is, but the most important, in my opinion, is video-RAM. Video cards have their own RAM, called “video-RAM” and the more RAM the video card has the faster the video card, and your computer, will run. Go to “Display Properties” from the control panel or by right clicking on your desktop and clicking “Properties” and then click “Settings” and click “Adapter” to see how much video RAM your current video card has. If you have less then 128 megabytes of Video-RAM in your desktop, and you play a lot of computer games, I would highly recommend upgrading to a video card with 128 megabytes of video-RAM, such as the NVIDIA GeForce MX400 128Mb PCI, which goes in the PCI expansion slot. I bought it for only fifty dollars online (it’s normally a hundred dollars in stores but I got a great deal on it from www.newegg.com I recommend www.newegg.com for those interested in buying computer parts – there’s even better deals on neweggs older website, just click on “Newegg Old Version” or something like that at the top right hand corner of the homepage of newegg.com). After upgrading from a measly eight megabyte video card to the NVIDIA GeForce MX4000 128MB PCI video card, my computer performed twice as fast! Games that used to take up to fifteen minutes to load would load in seconds!
Anyway, let’s get back to talking about AGP cards. The photograph below shows what an AGP expansion slot looks like.
AGP slots and cards come in four different modes, and you must be careful to match the card and slot with the correct mode. Some AGP cards and AGP slots are capable of running in more than one mode. AGP 1x mode is the oldest; it transfers data at 266MBs per second. AGP 2x mode transfers data at 533megabytes per second. AGP 4x mode transfers data at 1.07 gigabytes (1007 megabytes) per second. The latest AGP mode is AGP 8x. It transfers data at 2.14gigabytes (2140 megabytes) per second!
Below is a picture of three PCI Express slots.
PCI EXPRESS
PCI Express is a new technology that is slowly replacing AGP. PCI Express x16 slots can transfer data at 4GBs per second, which is about twice as fast as an AGP 8x slot! PCIe stands for PCI Express, or PCIexpress. PCI Express slots come in five different sizes and speeds: PCIe x1, PCIe x2, PCIe x4, PCIe x8, and PCIe x16. PCIe x16 slots are used for graphics cards.
When you talk into your computer's microphone, the sound card's digital signal processor works along with the analog-to-digital converter to process and convert analog sound data to digital sound data, which can be saved onto your computers memory. Record players are analog – they are made of tiny engravings that the needle moves through, that move back and forth in a wave shape to change the frequency of the sound. Computers, however, are digital. A music file stored on a computer hard drive is stored as a series of positive and negatively (north and south) magnetically charged sectors on the hard drive. These are represented by 1s and 0s in what is called binary code. Different sequences of these magnetic charges instruct the computer to perform different tasks, and in this case, tell the computer what frequencies and volumes to play when playing the music file.Better sound cards have better sound, however, you can save a ton of money by just buying a mediocre sound card online (I recommend www.newegg.com for those interested in buying computer parts – there’s even better deals on neweggs older website, just click on “Newegg Old Version” or something like that at the top right hand corner of the homepage of newegg.com) The Sound Blaster Live Value card allows you to connect a sound input device, like a CD-Player or radio, a microphone, front speakers, rear speakers, and a joystick or MIDI instrument, like an MIDI keyboard. The front and rear speakers can be combined together to produce stereo surround sound. Just like the video card, the sound card uses its own little processor to process sound data.
Below is a picture of a SCSI (pronounced “sscuhzy”) PCI expansion card. SCSI is an abbreviation for "Small Computer Interface System." With a SCSI expansion card, you can connect up to fifteen devices to one SCSI connection. SCSI is one of the fastest data transfer interfaces there is. SCSI cards are available with transfer rates up to 320 MB per second! The Ultra320 SCSI-3 interface is the fastest SCSI interface, with a 320MB/sec data transfer rate! Below is a picture of a PCI SCSI expansion card.
AGP SlotsThe AGP expansion slot connects AGP video cards to the motherboard. The video card shown above is an AGP GeForce FX 5500. Video cards are also known as graphics cards. They process video and image data that will be displayed on your screen. The monitor plugs into the video card. AGP is an abbreviation for Accelerated Graphics Port. Most AGP video cards are capable of a higher data transfer rate than PCI video cards. Video cards, like the one shown above, simply plug into an AGP slot and connect a monitor or other video display device to a computer, usually through the VGA port. The video card shown above has three different ports, for three different types of monitors. The "DVI Out" connector connects to a “digital video display”. DVI is an abbreviation for Digital Video Interface. Video cards with a TV output connection are capable of displaying a computer's video on a television instead of a computer monitor, which is great for playing movies on your computer. Unfortunately, most televisions only support a very low resolution and refresh rate when hooked up to computers. Video cards with a TV input connection are able of displaying a television's video on a computer. This allows you to record television programs onto your computers hard drive. The VGA connection is the standard connection to most monitors.
The quality of the display depends mostly on the type of video card, but also on the type of monitor. There are many factors in determining how good a video card is, but the most important, in my opinion, is video-RAM. Video cards have their own RAM, called “video-RAM” and the more RAM the video card has the faster the video card, and your computer, will run. Go to “Display Properties” from the control panel or by right clicking on your desktop and clicking “Properties” and then click “Settings” and click “Adapter” to see how much video RAM your current video card has. If you have less then 128 megabytes of Video-RAM in your desktop, and you play a lot of computer games, I would highly recommend upgrading to a video card with 128 megabytes of video-RAM, such as the NVIDIA GeForce MX400 128Mb PCI, which goes in the PCI expansion slot. I bought it for only fifty dollars online (it’s normally a hundred dollars in stores but I got a great deal on it from www.newegg.com I recommend www.newegg.com for those interested in buying computer parts – there’s even better deals on neweggs older website, just click on “Newegg Old Version” or something like that at the top right hand corner of the homepage of newegg.com). After upgrading from a measly eight megabyte video card to the NVIDIA GeForce MX4000 128MB PCI video card, my computer performed twice as fast! Games that used to take up to fifteen minutes to load would load in seconds!
Anyway, let’s get back to talking about AGP cards. The photograph below shows what an AGP expansion slot looks like.
AGP slots and cards come in four different modes, and you must be careful to match the card and slot with the correct mode. Some AGP cards and AGP slots are capable of running in more than one mode. AGP 1x mode is the oldest; it transfers data at 266MBs per second. AGP 2x mode transfers data at 533megabytes per second. AGP 4x mode transfers data at 1.07 gigabytes (1007 megabytes) per second. The latest AGP mode is AGP 8x. It transfers data at 2.14gigabytes (2140 megabytes) per second!
Below is a picture of three PCI Express slots.
PCI EXPRESS
PCI Express is a new technology that is slowly replacing AGP. PCI Express x16 slots can transfer data at 4GBs per second, which is about twice as fast as an AGP 8x slot! PCIe stands for PCI Express, or PCIexpress. PCI Express slots come in five different sizes and speeds: PCIe x1, PCIe x2, PCIe x4, PCIe x8, and PCIe x16. PCIe x16 slots are used for graphics cards.
Bits, bytes, and other units of measure for digital information
What are bits, bytes, and other units of measure for digital information?
A bit is a binary digit, the smallest increment of data on a computer. A bit can hold only one of two values: 0 or 1, corresponding to the electrical values of off or on, respectively.
Because bits are so small, you rarely work with information one bit at a time. Bits are usually assembled into a group of eight to form a byte. A byte contains enough information to store a single ASCII character, like "h".
A kilobyte (KB) is 1,024 bytes, not one thousand bytes as might be expected, because computers use binary (base two) math, instead of a decimal (base ten) system.
Computer storage and memory is often measured in megabytes (MB) and gigabytes (GB). A medium-sized novel contains about 1MB of information. 1MB is 1,024 kilobytes, or 1,048,576 (1024x1024) bytes, not one million bytes.
Similarly, one 1GB is 1,024MB, or 1,073,741,824 (1024x1024x1024) bytes. A terabyte (TB) is 1,024GB; 1TB is about the same amount of information as all of the books in a large library, or roughly 1,610 CDs worth of data. A petabyte (PB) is 1,024TB. Indiana University is now building storage systems capable of holding petabytes of data. An exabyte (EB) is 1,024PB. A zettabyte (ZB) is 1,024EB. Finally, a yottabyte (YB) is 1,024ZB.
Many hard drive manufacturers use a decimal number system to define amounts of storage space. As a result, 1MB is defined as one million bytes, 1GB is defined as one billion bytes, and so on. Since your computer uses a binary system as mentioned above, you may notice a discrepancy between your hard drive's published capacity and the capacity acknowledged by your computer. For example, a hard drive that is said to contain 10GB of storage space using a decimal system is actually capable of storing 10,000,000,000 bytes. However, in a binary system, 10GB is 10,737,418,240 bytes. As a result, instead of acknowledging 10GB, your computer will acknowledge 9.31GB. This is not a malfunction but a matter of different definitions.
We count in base 10 by powers of 10:
101 = 10
102 = 10*10 = 100
103 = 10*10*10 = 1,000
106 = 1,000,000
Computers count by base 2:
21 = 2
22 = 2*2 = 4
23 = 2*2*2 = 8
210 = 1,024
220 = 1,048,576
So in computer jargon, the following units are used:
Unit
Equivalent
1 kilobyte (KB)
1,024 bytes
1 megabyte (MB)
1,048,576 bytes
1 gigabyte (GB)
1,073,741,824 bytes
1 terabyte (TB)
1,099,511,627,776 bytes
1 petabyte (PB)
1,125,899,906,842,624 bytes
Note: The names and abbreviations for numbers of bytes are easily confused with the notations for bits. The abbreviations for numbers of bits use a lower-case "b" instead of an upper-case "B". Since one byte is made up of eight bits, this difference can be significant. For example, if a broadband Internet connection is advertised with a download speed of 3.0Mbps, its speed is 3.0 megabits per second, or 0.375 megabytes per second (which would be abbreviated as 0.375MBps). Bits and bit rates (bits over time, as in bits per second [bps]) are most commonly used to describe connection speeds, so pay particular attention when comparing Internet connection providers and services.
Because bits are so small, you rarely work with information one bit at a time. Bits are usually assembled into a group of eight to form a byte. A byte contains enough information to store a single ASCII character, like "h".
A kilobyte (KB) is 1,024 bytes, not one thousand bytes as might be expected, because computers use binary (base two) math, instead of a decimal (base ten) system.
Computer storage and memory is often measured in megabytes (MB) and gigabytes (GB). A medium-sized novel contains about 1MB of information. 1MB is 1,024 kilobytes, or 1,048,576 (1024x1024) bytes, not one million bytes.
Similarly, one 1GB is 1,024MB, or 1,073,741,824 (1024x1024x1024) bytes. A terabyte (TB) is 1,024GB; 1TB is about the same amount of information as all of the books in a large library, or roughly 1,610 CDs worth of data. A petabyte (PB) is 1,024TB. Indiana University is now building storage systems capable of holding petabytes of data. An exabyte (EB) is 1,024PB. A zettabyte (ZB) is 1,024EB. Finally, a yottabyte (YB) is 1,024ZB.
Many hard drive manufacturers use a decimal number system to define amounts of storage space. As a result, 1MB is defined as one million bytes, 1GB is defined as one billion bytes, and so on. Since your computer uses a binary system as mentioned above, you may notice a discrepancy between your hard drive's published capacity and the capacity acknowledged by your computer. For example, a hard drive that is said to contain 10GB of storage space using a decimal system is actually capable of storing 10,000,000,000 bytes. However, in a binary system, 10GB is 10,737,418,240 bytes. As a result, instead of acknowledging 10GB, your computer will acknowledge 9.31GB. This is not a malfunction but a matter of different definitions.
We count in base 10 by powers of 10:
101 = 10
102 = 10*10 = 100
103 = 10*10*10 = 1,000
106 = 1,000,000
Computers count by base 2:
21 = 2
22 = 2*2 = 4
23 = 2*2*2 = 8
210 = 1,024
220 = 1,048,576
So in computer jargon, the following units are used:
Unit
Equivalent
1 kilobyte (KB)
1,024 bytes
1 megabyte (MB)
1,048,576 bytes
1 gigabyte (GB)
1,073,741,824 bytes
1 terabyte (TB)
1,099,511,627,776 bytes
1 petabyte (PB)
1,125,899,906,842,624 bytes
Note: The names and abbreviations for numbers of bytes are easily confused with the notations for bits. The abbreviations for numbers of bits use a lower-case "b" instead of an upper-case "B". Since one byte is made up of eight bits, this difference can be significant. For example, if a broadband Internet connection is advertised with a download speed of 3.0Mbps, its speed is 3.0 megabits per second, or 0.375 megabytes per second (which would be abbreviated as 0.375MBps). Bits and bit rates (bits over time, as in bits per second [bps]) are most commonly used to describe connection speeds, so pay particular attention when comparing Internet connection providers and services.
Wednesday, April 15, 2009
Journal Entries
Example 1: Financing Activities
Owner invested $10,000 in the company. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Assets (Cash) by $10,000
Debit
2
Increase in Owner's Equity by $10,000
Credit Journal Entry
Debit
Credit
Cash
10,000
Owner's Equity
10,000 Description of Journal Entry
Owner invested $10,000 in the company. Results of Journal Entry
Cash balance increases by $10,000. --> Increase in AssetsOwner's Equity balance increases by $10,000. --> Increase in Owner's Equity
Example 2: Financing Activities
The company borrowed $20,000 from a bank. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Assets (Cash) by $20,000
Debit
2
Increase in Liabilities (Borrowings) by $20,000
Credit Journal Entry
Debit
Credit
Cash
20,000
Borrowings
20,000 Description of Journal Entry
Borrowed $20,000. Results of Journal Entry
Cash balance increases by $20,000. --> Increase in AssetsBorrowings balance increases by $10,000. --> Increase in Liabilities
Example 3: Investing Activities
The company purchased $12,000 equipment and paid in cash. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Assets (Equipment) by $12,000
Debit
2
Decrease in Assets (Cash) by $12,000
Credit Journal Entry
Debit
Credit
Equipment
12,000
Cash
12,000 Description of Journal Entry
Purchased $12,000 equipment in cash. Results of Journal Entry
Equipment balance increases by $12,000. --> Increase in AssetsCash balance decreases by $12,000. --> Decrease in Assets
Example 4: Operating Activities
The company purchased $6,000 merchandise (600 units) on credit. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Assets (Merchandise) by $6,000
Debit
2
Increase in Liabilities (Accounts Payable) by $6,000
Credit Journal Entry
Debit
Credit
Merchandise
6,000
Accounts Payable
6,000 Description of Journal Entry
Purchased $6,000 merchandise on credit. Results of Journal Entry
Merchandise balance increases by $6,000. --> Increase in AssetsAccounts Payable balance increases by $6,000. --> Increase in Liabilities
Example 5: Operating Activities
The company sold 500 units of merchandise at the price of $11,000. Customer paid $9,000 in cash at the time of sale. Analysis of Transaction Note: This transaction includes both "REVENUE" and "EXPENSE" components. (1) REVENUE side
Steps
Debit or Credit ?
1
Increase in Assets (Cash) by $9,000
Debit
2
Increase in Assets (Accounts Receivable) by $2,000
Debit
3
Increase in Revenue (Sales) by $11,000
Credit (2) EXPENSE side
Steps
Debit or Credit ?
1
Increase in Expenses (Cost of Merchandise Sold) by $5,000($6,000 / 600 units = $10 per unit)($10 per unit X 500 units sold = $5,000 cost)
Debit
2
Decrease in Assets (Merchandise) by $5,000
Debit (1) REVENUE Journal Entry
Debit
Credit
Cash
9,000
Accounts Receivable
9,000
Sales Revenue
11,000 Description of Journal Entry
Sold merchandise at $11,000 price and received $9,000 in cash. Results of Journal Entry
Cash balance increases by $9,000. --> Increase in AssetsAccounts Receivable balance increases by $2,000. --> Increase in AssetsSales Revenue account balance increases by $11,000. --> Increase in Revenue
(2) EXPENSE Journal Entry
Debit
Credit
Cost of Merchandise Sold
5,000
Merchandise
5,000 Description of Journal Entry
To record the cost of merchandise sold. Results of Journal Entry
Merchandise balance decreases by $5,000. --> Decrease in AssetsCost of Merchandise Sold account balance increases by $5,000. --> Increase in Expense
Example 6: Operating Activities
The company paid $3,500 salaries. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Expenses (Salaries Expense) by $3,500
Debit
2
Decrease in Assets (Cash) by $3,500
Credit Journal Entry
Debit
Credit
Salaries Expense
3,500
Cash
3,500 Description of Journal Entry
Paid $3,500 salaries. Results of Journal Entry
Cash balance decreases by $3,500. --> Decrease in AssetsSalaries Expense account balance increases by $3,500. --> Increase in Expenses
Example 7: Operating Activities
The company paid $1,500 rent. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Expenses (Rent Expense) by $1,500
Debit
2
Decrease in Assets (Cash) by $1,500
Credit Journal Entry
Debit
Credit
Rent Expense
1,500
Cash
1,500 Description of Journal Entry
Paid $1,500 rent. Results of Journal Entry
Cash balance decreases by $1,500. --> Decrease in AssetsRent Expense account balance increases by $1,500. --> Increase in Expenses
Owner invested $10,000 in the company. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Assets (Cash) by $10,000
Debit
2
Increase in Owner's Equity by $10,000
Credit Journal Entry
Debit
Credit
Cash
10,000
Owner's Equity
10,000 Description of Journal Entry
Owner invested $10,000 in the company. Results of Journal Entry
Cash balance increases by $10,000. --> Increase in AssetsOwner's Equity balance increases by $10,000. --> Increase in Owner's Equity
Example 2: Financing Activities
The company borrowed $20,000 from a bank. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Assets (Cash) by $20,000
Debit
2
Increase in Liabilities (Borrowings) by $20,000
Credit Journal Entry
Debit
Credit
Cash
20,000
Borrowings
20,000 Description of Journal Entry
Borrowed $20,000. Results of Journal Entry
Cash balance increases by $20,000. --> Increase in AssetsBorrowings balance increases by $10,000. --> Increase in Liabilities
Example 3: Investing Activities
The company purchased $12,000 equipment and paid in cash. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Assets (Equipment) by $12,000
Debit
2
Decrease in Assets (Cash) by $12,000
Credit Journal Entry
Debit
Credit
Equipment
12,000
Cash
12,000 Description of Journal Entry
Purchased $12,000 equipment in cash. Results of Journal Entry
Equipment balance increases by $12,000. --> Increase in AssetsCash balance decreases by $12,000. --> Decrease in Assets
Example 4: Operating Activities
The company purchased $6,000 merchandise (600 units) on credit. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Assets (Merchandise) by $6,000
Debit
2
Increase in Liabilities (Accounts Payable) by $6,000
Credit Journal Entry
Debit
Credit
Merchandise
6,000
Accounts Payable
6,000 Description of Journal Entry
Purchased $6,000 merchandise on credit. Results of Journal Entry
Merchandise balance increases by $6,000. --> Increase in AssetsAccounts Payable balance increases by $6,000. --> Increase in Liabilities
Example 5: Operating Activities
The company sold 500 units of merchandise at the price of $11,000. Customer paid $9,000 in cash at the time of sale. Analysis of Transaction Note: This transaction includes both "REVENUE" and "EXPENSE" components. (1) REVENUE side
Steps
Debit or Credit ?
1
Increase in Assets (Cash) by $9,000
Debit
2
Increase in Assets (Accounts Receivable) by $2,000
Debit
3
Increase in Revenue (Sales) by $11,000
Credit (2) EXPENSE side
Steps
Debit or Credit ?
1
Increase in Expenses (Cost of Merchandise Sold) by $5,000($6,000 / 600 units = $10 per unit)($10 per unit X 500 units sold = $5,000 cost)
Debit
2
Decrease in Assets (Merchandise) by $5,000
Debit (1) REVENUE Journal Entry
Debit
Credit
Cash
9,000
Accounts Receivable
9,000
Sales Revenue
11,000 Description of Journal Entry
Sold merchandise at $11,000 price and received $9,000 in cash. Results of Journal Entry
Cash balance increases by $9,000. --> Increase in AssetsAccounts Receivable balance increases by $2,000. --> Increase in AssetsSales Revenue account balance increases by $11,000. --> Increase in Revenue
(2) EXPENSE Journal Entry
Debit
Credit
Cost of Merchandise Sold
5,000
Merchandise
5,000 Description of Journal Entry
To record the cost of merchandise sold. Results of Journal Entry
Merchandise balance decreases by $5,000. --> Decrease in AssetsCost of Merchandise Sold account balance increases by $5,000. --> Increase in Expense
Example 6: Operating Activities
The company paid $3,500 salaries. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Expenses (Salaries Expense) by $3,500
Debit
2
Decrease in Assets (Cash) by $3,500
Credit Journal Entry
Debit
Credit
Salaries Expense
3,500
Cash
3,500 Description of Journal Entry
Paid $3,500 salaries. Results of Journal Entry
Cash balance decreases by $3,500. --> Decrease in AssetsSalaries Expense account balance increases by $3,500. --> Increase in Expenses
Example 7: Operating Activities
The company paid $1,500 rent. Analysis of Transaction
Steps
Debit or Credit ?
1
Increase in Expenses (Rent Expense) by $1,500
Debit
2
Decrease in Assets (Cash) by $1,500
Credit Journal Entry
Debit
Credit
Rent Expense
1,500
Cash
1,500 Description of Journal Entry
Paid $1,500 rent. Results of Journal Entry
Cash balance decreases by $1,500. --> Decrease in AssetsRent Expense account balance increases by $1,500. --> Increase in Expenses
Islamic Economics
Islamic economics
economics in accordance with Islamic law. Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; i.e. it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, etc. where the state does not follow Islamic law.
The former paradigm, particularly as developed by modern Shia scholars such as Mahmoud Taleghani, and Mohammad Baqir al-Sadr, seeks not only to enforce Islamic regulations on issues such as Zakat, Jizya, Nisab, Khums, Riba, insurance and inheritance, but to implement broader economic goals and policies of an Islamic society. It seeks an economic system based on uplifting the deprived masses, a major role for the state in matters such as circulation and equitable distribution of wealth and ensuring participants in the marketplace are rewarded for being exposed to risk and/or liability. Islamists movements and authors will generally describe this system as being neither Socialist nor Capitalist, but a third way with none of the drawbacks of the other two systems.The latter paradigm is of necessity more limited, revolving around a few main tenets of Islam: the payment of zakat charity by believers, borrowing and lending without payment of fixed interest (riba), and socially responsible investing. The key difference from a financial perspective is the no-interest rule since most other religions favor charitable giving and socially responsible investing. The belief that the prohibition of investment with interest charges is essential for an Islamic society is widespread, though liberal movements within Islam may deny the need for this prohibition, since they see Islam as generally compatible with modern secular institutions and law.
Contents
1 History
1.1 Early reforms under Islam
1.2 Capitalist market economy
1.3 Classical Muslim economic thought
1.4 Post-colonial era
1.5 Traditional approach
2 Property
2.1 Public property
2.2 State property
2.3 Private property
3 Market
3.1 Interference
3.2 Islamic insurance
4 Banking
4.1 Interest
4.2 Debt arrangements
4.3 Money changers
5 Natural capital
6 Welfare
7 Islamic stocks
8 Popularity and availability
9 Business Method Patents
10 Views
10.1 Criticism
12 References
13 Bibliography
History
Main article: Islamic economics in the world
Traditional Islamic concepts having to do with economics included
zakat - the "taxing of certain goods, such as harvest, with an eye to allocating these taxes to expenditures that are also explicitly defined, such as aid to the needy."
Gharar - "the interdiction of chance ... that is, of the presence of any element of uncertainty, in a contract (which excludes not only insurance but also the lending of money without participation in the risks)"
Riba - "referred to as usury" [3]
These concepts, like others in Islamic law, came from the "prescriptions, anecdotes, examples, and words of the Prophet, all gathered together and systematized by commentators according to an inductive, casuistic method." [3] Sometimes other sources such as al-urf, (the custom), al-aql (reason) or al-ijma (consensus of the jurists) were employed.[4]
In addition, Islamic law has developed areas of law that correspond to secular laws of contracts and torts.
Early reforms under Islam
Main article: Early reforms under Islam
Some argue early Islamic theory and practice formed a "coherent" economic system with "a blueprint for a new order in society, in which all participants would be treated more fairly". Michael Bonner, for example, has written that an "economy of poverty" prevailed in Islam until 13th and 14th century. Under this system God's guidance made sure the flow of money and goods was "purified" by being channeled from those who had much of it to those who had little by encouraging zakat (charity) and discouraging riba (usury/interest) on loans. Bonner maintains the prophet also helped poor traders by allowing only tents, not permanent buildings in the market of Medina, and not charging fees and rents there.[5]
Capitalist market economy
Main article: Islamic economics in the world
The origins of capitalism and free markets can be traced back to the Islamic Golden Age and Muslim Agricultural Revolution,[6] where the first market economy and earliest forms of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".[7] A vigorous monetary economy was created by Muslims on the basis of the expanding levels of circulation of a stable high-value currency (the dinar) and the integration of monetary areas that were previously independent. Innovative new business techniques and forms of business organisation were introduced by economists, merchants and traders during this time. Such innovations included the earliest trading companies, big businesses, contracts, bills of exchange, long-distance international trade, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal),[8] circulating capital, capital expenditure, revenue, cheques, promissory notes,[9] trusts (see Waqf), startup companies,[10] savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system,[11] and lawsuits.[12] Organizational enterprises similar to corporations independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced.[13][14] Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.[8]
The systems of contract relied upon by merchants was very effective. Merchants would buy and sell on commission, with money loaned to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian and Jewish. Recently, a collection of documents was found in an Egyptian synagogue shedding a very detailed and human light on the life of medieval Middle Eastern merchants. Business partnerships would be made for many commercial ventures, and bonds of kinship enabled trade networks to form over huge distances. Networks developed during this time enabled a world in which money could be promised by a bank in Baghdad and cashed in Spain, creating the cheque system of today.[citation needed] Each time items passed through the cities along this extraordinary network, the city imposed a tax, resulting in high prices once reaching the final destination. These innovations made by Muslims and Jews laid the foundations for the modern economic system.
Classical Muslim economic thought
Statue of Ibn Khaldoun in Tunis
Main article: Islamic economics in the world
To some degree, the early Muslims based their economic analyses on the Qu'ran (such as opposition to riba, meaning usury or interest), and from sunnah, the sayings and doings of prophet Muhammad.
Perhaps the most well known Islamic scholar who wrote about economics was Ibn Khaldun (1332–1406),[15] who is considered a father of modern economics.[16][17] 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.[18] 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.[19] He also noted macroeconomic forces of population growth, human capital development, and technological developments effects on development.[20] In fact, Ibn Khaldun thought that population growth was directly a function of wealth.[21]
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.
Post-colonial era
During the modern post-colonial era, as Western ideas, including Western economics, began to influence the Muslim world, some Muslim writers sought to produce an Islamic discipline of economics. Because Islam is "not merely a spiritual formula but a complete system of life in all its walks", [22] these writers believed that it should logically follow that Islam also had its own economic system unique from and superior to non-Islamic systems. [23] To date, however, there have been no agreement as to the methodological definition and scope of Islamic Economics.
In the 1960s and 70s Shia Islamic thinkers worked to develop a unique Islamic economic philosophy with "its own answers to contemporary economic problems." Several works were particularly influential,
Eslam va Malekiyyat (Islam and Property) by Mahmud Taleqani (1951),
Iqtisaduna (Our Economics) by Mohammad Baqir al-Sadr (1961) and
Eqtesad-e Towhidi (The Economics of Divine Harmony) by Abolhassan Banisadr (1978)
Some Interpretations of Property Rights, Capital and Labor from Islamic Perspective by Habibullah Peyman (1979).[24] [25]
Al-Sadr in particular has been described as having "almost single-handedly developed the notion of Islamic economics" [26]
In their writings Sadr and the other authors "sought to depict Islam as a religion committed to social justice, the equitable distribution of wealth, and the cause of the deprived classes," with doctrines "acceptable to Islamic jurists", while refuting existing non-Islamic theories of capitalism and Marxism. This version of Islamic economics, which influenced the Iranian Revolution, called for public ownership of land and of large "industrial enterprises," while private economic activity continued "within reasonable limits." [27] These ideas helped shape the large public sector and public subsidy policies of the Iranian Islamic revolution.
In the 1980s and 1990s, as the Islamic revolution failed to reach the per capita income level achieved by the regime it overthrew, and Communist states and socialist parties in the non-Muslim world turned away from socialism, Muslim interest shifted away from government ownership and regulation. In Iran, it is reported that "eqtesad-e Eslami (meaning both Islamic economics and economy) ... once a revolutionary shibboleth, is indubitably absent in all official documents and the media. It disapperared from Iranian political discourse about 15 years ago [1990]." [25]
But in other parts of the Muslim world the term lived on, shifting form to the less ambitious goal of interest-free banking. Some Muslim bankers and religious leaders suggested ways to integrate Islamic law on usage of money with modern concepts of ethical investing. In banking this was done through the use of sales transactions (focusing on the fixed rate return modes) to achieve similar results to interest. This has been heavily criticised by many modern writers as a means of covering conventional banking with an Islamic facade.
In 2008 an economist and former advisor to Tony Blair, Tahir Iqbal, resolved the existing issues in Islamic economics of both providing a fully shariah compliant Islamic political economy (including the problem of government borrowing and mortgages) in his book "what is the sound of an invisible hand clapping", published by maison mascara books. The foundation of this was the quard al hasana (good debt)which when introduced with zakat on all assets sets in place a new framework that solves boom and bust and implies that poverty itself could be stopped using Islamic economics.
Traditional approach
While many Muslims believe Islamic law is perfect by virtue of its being revealed by God, Islamic law on economic issues was/is not "economics" in the sense of a systematic study of production, distribution, and consumption of goods and services. An example of the traditionalist ulama approach to economic issues is Imam Khomeini's work Tawzih al-masa'il where the term `economy` does not appear and where the chapter on selling and buying (Kharid o forush) comes after the one on pilgrimage. As Olivier Roy puts it, the work "presents economic questions as individual acts open to moral analysis: `To lend [without interest, on a note from the lender] is among the good works that are particularly recommended in the verses of the Quran and the in the Traditions.`" [28]
Property
The Qur'an states that God is the sole owner of all matter in the heavens and the earth.[29] Man, however, is God's viceregent on earth and holds God's possessions in trust (amanat). Islamic jurists have divided properties into three categories:[30]
Public property
State property
Private property
Public property
Public property in Islam refers to natural resources (forests, pastures, uncultivated land, water, mines, oceanic resources etc.) over which all humans have equal right. Such resources are considered the common property of the community. Such property is placed under the guardianship and control of the Islamic state, and can be utilized by any citizen, as long as it does not undermine the right of other citizens over it.[30]
Some types of public property can not be privatized under Islamic law. Muhammad's saying that "people are partners in three things: water, fire and pastures", has led some scholars to believe that the privatization of water, energy and agricultural land is not permissible. Other types of public property, such as gold mines, were allowed by Muhammad to be privatized, in return for taxes to the Islamic state. The owner of the previously public property that was privatized has to pay zakat and, according Shiite scholars, khums as well. In general the privatization and nationalization of public property is subject to debate amongst Islamic scholars. Public property thus, eventually, becomes state or private property.[30]
State property
State property includes certain natural resources, as well as other property that can't immediately be privatized. Islamic state property can be movable, or immovable, can be acquired through conquest, or peaceful means. Unclaimed, unoccupied and heir less properties, including uncultivated land (mawat), can be considered state property.[30]
During the life of Muhammad, one fifth of military equipment captured from the enemy in the battlefield was considered state property. During his reign, Umar (on the recommendation of Ali) considered conquered land to be state property, instead of private property (as was usual practice). The reason for this was that privatizing this property would concentrate resources in the hands of a few, and prevent this property from being used for the general good of the community. The property remained under the occupation of the cultivators, but the taxes collected on it went to the state treasury.[30]
Muhammad said "Old and fallow lands are for God and His Messenger (i.e. state property), then they are for you". Jurists draw from this the conclusion that, ultimately, private ownership takes over state property.[30]
Private property
There is consensus amongst Islamic jurists and social scientists that Islam recognizes and upholds the individual's right to private ownership. The Qur'an extensively discusses taxation, inheritance, prohibition against stealing, legality of ownership, recommendation to give charity and other topics related to private property. Islam also guarantees the protection of private property by imposing stringent punishments on thieves. Muhammad said that he who dies defending his property was like a martyr.[31]
Islamic economists have classified the acquisition of private property into three categories: involuntary, contractual and non-contractual. Involuntary means are inheritance, bequests, and gifts. Non-contractual is acquisition involves the collection and exploitation of natural resources that have not previously been claimed as private property. Contractual acquisition includes activities such as trading, buying, renting, hiring labor etc.[31]
A tradition attributed to Muhammad, with which both Sunni and Shi'ite jurists agree, in cases where the right to private ownership causes harm to others, then Islam is in favor of curtailing the right in those cases. Maliki and Hanbali jurists argue that if private ownership endangers public interest, then the state can limit the amount an individual is allowed to own. This view, however, is debated by others.[31]
Market
Islam accepts markets as the basic co-ordinating mechanism of the economic system. Islamic teaching holds that the market, through perfect competition, allows consumers to obtain desired goods, producers to sell their goods, at a mutually acceptable price.[32]
The three necessary conditions for an operational market are said to be upheld in Islamic primary sources:[32]
Freedom of exchange: the Qur'an calls on believers to engage in trade, and rejects the contention that trade is forbidden.[33]
Private ownership (see above).
Security of contract: the Qur'an calls for the fulfillment and observation of contracts.[34] The longest verse of the Qur'an deals with commercial contracts involving immediate and future payments.[35]
Interference
Islam promotes a market free from interferences such as price fixing and hoarding. Government intervention, however, is tolerated under specific circumstances.[32]
Islam prohibits the fixation of a price by a handful of buyers or sellers who have become dominant in the market. During the days of Muhammad, a small group of merchants used to meet agricultural producers outside the city and bought the entire crop, thereby gaining monopoly over the market. The produce was later sold at a higher price within the city. Muhammad condemned this practice since it caused injury both to the producers (who in the absence of numerous customers were forced to sell goods at a lower price) and the inhabitants of Medina.[32]
The above mentioned reports are also used to justify the argument that the Islamic market is characterized by free information. Producers and consumers should not be denied information on demand and supply conditions. Producers are expected to inform consumers of the quality and quantity of goods they claim to sell. Some scholars hold that if an inexperienced buyer is swayed by the seller, the consumer may nullify the transaction upon realizing the seller's unfair treatment. The Qur'an also forbids discriminatory means of transaction.[36][32]
Government interference in the market is justified in exceptional circumstances, such as the protection of public interest. Under normal circumstances, government non-interference should be upheld. When Muhammad was asked to set the price of goods in a market he responded, "I will not set such a precedent, let the people carry on on with their activities and benefit mutually."[32]
Islamic insurance
A book by Dr Aly Khorshid "Islamic insurance, with modern approach to Islamic Banking" Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme.
Banking
Main article: Islamic banking
Interest
Islamic economic institutions, not just the Islamic bank but all those connected with Islamic banking operates on the basis of "zero interest." Critics of Islamic economics argue, however, that the fundamental characteristic of charging interest (i.e. charging a premium, on the principal amount of a loan, for the time value of the loaned money) is not truly eliminated in Islamic banking, but rather the interest is merely hidden and relabeled. However, where interest paid at the end of the time period depend on how long one took to make the repayments, the total Islamic mark-up is fixed regardless of how long one took to repay his dues. I.e, it is a profit margin on a sale, and not a time value of money.
For example, consider the practical reality of purchasing a vehicle from an Islamic bank under an allegedly "zero interest" loan. The procedure, generally, is that the client tells the Islamic bank which vehicle he or she would like to own. The Islamic bank then purchases that vehicle in its name, and sells it to the client at a marked-up price, under an agreement that the new marked-up price of the vehicle must be paid in a certain number of installments of a certain time period. Thus a $20,000 car might cost $35,000 if purchased from an Islamic bank at "zero interest," 5 year loan. One may reason that the Islamic bank charges the extra $15,000 on top of the $20,000 cost of the car because money has a time value (that is to say, a payment of $20,000 5 years from now is worth less than a payment of $20,000 today). This is also why a $20,000 car could cost $35,000 if the purchase were financed by an interest bearing loan issued by a non-Islamic financial institution. However, where under an Islamic bank one would end up paying the extra $15,000 no matter how quickly he pays his 'loan', under non-Islamic banking one can end up paying less if he repays his loans quicker, or more if he takes longer. The aforementioned transaction utilizes valid sales transactions called murabaha, but violates Islamic law by the bank usually not taking delivery or connecting two independent contracts or taking of legally enforceable guarantees from the buyer.
Usually, time value of money is compensated to the lender by the lender charging the borrower interest on the principal amount of the loan. Islam prohibits time value of money in itself as producing no value - in conjunction with other value driven agreements the idea is entertained.
In the case of Islamic banking, the lost time value is compensated by utilizing a sales contract, charging a mark-up on the home or vehicle that the client might be seeking to purchase by way of a loan. The vehicle or mortgage usually remains in the name of the bank, until the principal loan including the mark-up has been paid. In the case of a business loan, instead of charging interest over the time that the principal amount is loaned out, an Islamic bank will demand a certain percentage of the borrower's business profits for an indefinite period of time. So it is the principle of sharing and the bank is a partner who obtains losses as profits. This is because of a law in the Islamic financial theory that you are not allowed to enjoy the profits if you did not take its risk based on the famous tradition, al-kharaj bi damaan - return is determined by exposure to risk/liability.
Under a conventional interest based loan it is possible to "call" the loan if the interest rate drops and the borrower finds that he can find cheaper financing (i.e. pays off the entire loan before the end of its term, thus paying less interest). However, there is no way to call a loan issued by an Islamic bank. Thus, while the borrower from an Islamic bank is protected against interest rate increases, the borrower cannot benefit from interest rate drops.
In theory, Islamic banking should be synonymous with full-reserve banking, with banks achieving a 100% reserve ratio.[37]
Debt arrangements
Most Islamic economic institutions advise participatory arrangements between capital and labor. The latter rule reflects the Islamic norm that the borrower must not bear all the cost of a failure, as "it is God who determines that failure, and intends that it fall on all those involved."
Conventional debt arrangements are thus usually unacceptable - but conventional venture investment structures are applied even on very small scales. However, not every debt arrangement can be seen in terms of venture investment structures. For example, when a family buys a home it is not investing in a business venture - a person's shelter is not a business venture. Similarly, purchasing other commodities for personal use, such as cars, furniture, and so on, cannot realistically be considered as a venture investment in which the Islamic bank shares risks and profits for the profits of the venture.
Money changers
Due to religious sanctions against odious debt, Tamil Muslims have historically been money changers (not money lenders) throughout South and South East Asia.[38]
Natural capital
Perhaps due to resource scarcity in most Islamic nations, this form of economics also emphasizes limited (and some claim also sustainable) use of natural capital, i.e. producing land. These latter revive traditions of haram and hima that were prevalent in early Muslim civilization.
Welfare
Social welfare, unemployment, public debt and globalization have been re-examined from the perspective of Islamic norms and values. Islamic banks have grown recently in the Muslim world but are a very small share of the global economy compared to the Western debt banking paradigm. It remains to be seen[vague] if they will find niches - although hybrid approaches, e.g. Grameen Bank which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern human development theory.
Islamic stocks
In June 2005 Dow Jones Indexes, New York, and RHB Securities, Kuala Lumpur, teamed up to launch a new "Islamic Malaysia Index" —a collection of 45 stocks representing Malaysian companies that comply with a variety of Sharia-based criteria. Three variables (the total debt of an indexed company, its total cash plus interest-bearing securities and its accounts receivables) must each be less than 33% of the trailing 12-month average capitalization, for example.
Popularity and availability
Main article: Islamic economics in the world
Today there are many financial institutions, even in the Western world, offering financial services and products in accordance with the rules of the Islamic finance. For example, legal changes introduced by Chancellor Gordon Brown in 2003, have enabled British banks and building societies to offer so-called Muslim mortgages for house purchase.
In 2004 the UK's first stand alone Sharia'a compliant bank was launched, the Islamic Bank of Britain. Several banks offer products and services to its UK customers that utilise the Islamic financial principles; such as Mudaraba, Murabaha, Musharaka and Qard.
The Islamic finance sector was worth between 300 and 500 billion dollars (237 and 394 billion euros) as of September 2006, compared with 200 billion dollars in 2004. The number of Islamic retail banks and investment funds number in their hundreds and many Western financial institutions offer products that comply with Sharia law, including Citigroup, Deutsche Bank, HSBC, Lloyds TSB and UBS. In 2008, at least $500 billion in assets around the world were managed in accordance with Sharia, or Islamic law, and the sector was growing at more than 10% per year. Islamic finance seeks to promote social justice by banning exploitative practices. In reality, this boils down to a set of prohibitions--on paying interest, on gambling with derivatives and options, and on investing in firms that make pornography or pork.[39]
Business Method Patents
With the recent ability to patent new methods of doing business in the United States, a small number of patent applications have been filed on methods for providing Sharia compliant financial services. These pending patent applications include:
US patent US20030233324A1Declining balance co-ownership financing arrangement. This discloses an allegedly Sharia compliant financing arrangement for home purchases and refinances that does not involve the payment of interest.
WO patent WO06068837A2 Controlling a Computer System Enabling Sharia-Compliant Financing. This discloses an improved computer system for carrying out Sharia compliant financial transactions.
Views
Sohrab Behada's study argued that the economic system proposed by Islam is essentially a capitalist one.[40]
Criticism
Its popularity notwithstanding, critics of Islamic economics have not been sparing. It has been attacked for its alleged "incoherence, incompleteness, impracticality, and irrelevance;" [41] driven by "cultural identity" rather than problem solving.[42] Others have dismissed it as "a hodgepodge of populist and socialist ideas," in theory and "nothing more than inefficient state control of the economy and some almost equally ineffective redistribution policies," in practice. [43]
In a political and regional context where Islamist and ulema claim to have an opinion about everything, it is striking how little they have to say about this most central of human activities, beyond repetitious pieties about how their model is neither capitalist nor socialist.[43]
Talking finance, although none of the above critics provide empirical evidence on the alleged claims; however, the so far withstanding critic of the Islamic financial practice pertains to its product’s structure. Interest-bearing (Riba) and speculation-involving (Gharar) trading are clearly prohibited by explicit canonical texts. Therefore presumably all the financial structures of all the Islamic products should be interest and speculation free. Nevertheless, some new empirical studies hypothesize that “Islamic finance products’ structure is based on the Islamic prohibitions; however, these products’ risk management is still based on revoking the underlying prohibitions”. The most prominent case here is Islamic financial market products such as, inter alia, Salam and Istisna’ these products are used are hedging methods for the Islamic bonds Sukuk. If Sukuk’s originator or investors wish to hedge against interest rate or exchange rate risks then they have to use one of the former methods. These methods as they originally mimic the conventional risk management practice, should involve either interest-bearing or speculation-bearing trading or even both. There have been some innovations that try to avoid falling in interest-based and/or speculation based transactions. Parallel Salam and synthetics are the most recent.
References
^ a b Islam and Economic Justice: A 'Third Way' Between Capitalism and Socialism?
^ a b How Do We Know Islam Will Solve the Problems of Poverty and Inequality?
^ a b Roy, The Failure of Political Islam Harvard University Press, 1994, p.132
^ Schirazi, Asghar, Constitution of Iran, (1997), p.170
^ Michael Bonner, "Poverty and Economics in the Qur’an", Journal of Interdisciplinary History, xxxv:3 (Winter, 2005), 391–406
^ The Cambridge economic history of Europe, p. 437. Cambridge University Press, ISBN 0521087090.
^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [81, 83, 85, 90, 93, 96].
^ a b Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism 15 (1), pp. 47–74, Brill Publishers.
^ Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie Constable (2001), Medieval Trade in the Mediterranean World: Illustrative Documents, Columbia University Press, ISBN 0231123574.
^ Timur Kuran (2005), "The Absence of the Corporation in Islamic Law: Origins and Persistence", American Journal of Comparative Law 53, pp. 785–834 [798–9].
^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [92–3].
^ Ray Spier (2002), "The history of the peer-review process", Trends in Biotechnology 20 (8), p. 357-358 [357].
^ Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", Comparative Studies in Society and History 41, pp. 263–93. Cambridge University Press.
^ Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", MERIP Reports 68, pp. 3–14 [8, 13].
^ Schumpeter (1954) p 136 mentions his his sociology, others, including Hosseini (2003) emphasize him as well
^ I. M. Oweiss (1988), "Ibn Khaldun, the Father of Economics", Arab Civilization: Challenges and Responses, New York University Press, ISBN 0887066984.
^ Jean David C. Boulakia (1971), "Ibn Khaldun: A Fourteenth-Century Economist", The Journal of Political Economy 79 (5): 1105-1118.
^ Weiss (1995) p29-30
^ Weiss (1995) p31 quotes Muqaddimah 2:276-278
^ Weiss (1995), p. 31, quotes Muqaddimah 2: 272-273
^ Weiss (1995), p. 33
^ The Economic Life of Islam
^ Michael Bonner, "Poverty and Economics in the Qur’an", Journal of Interdisciplinary History, xxxv:3 (Winter, 2005), 391–406
^ Bakhash, Shaul, The Reign of the Ayatollahs, Basic Books, c1984, p.167-8
^ a b Revolutionary Surge and Quiet Demise of Islamic Economics in Iran
^ The Renewal of Islamic Law
^ Bakhash, Shaul, The Reign of the Ayatollahs, Basic Books, c1984, p.172-3
^ Roy, The Failure of Political Islam Harvard University Press, 1994, p.133
^ Nomani and Rahnema quote Qur'an 2:107, Qur'an 2:255, Qur'an 2:284, Qur'an 5:120, Qur'an 48:14
^ a b c d e f Nomani and Rahnema (1994), p. 66-70
^ a b c Nomani and Rahnema (1994), p. 71-77
^ a b c d e f Nomani and Rahnema (1994), p. 55-58
^ Nomani and Rahnema cite Qur'an 4:29, Qur'an 2:275 and Qur'an 2:279
^ Nomani and Rahnema cite Qur'an 5:1, Qur'an 16:91, Qur'an 23:8, Qur'an 17:34 and Qur'an 70:32
^ Nomani and Rahnema cite Qur'an 2:282.
^ Nomani and Rahnema cite Qur'an 55:9, Qur'an 26:181–183, Qur'an 11:84–85. They also point out that a chapter is devoted to such fraudulent practices: Qur'an 83:1–3
^ A MONETARY SYSTEM WITH 100-PER CENT RESERVE REQUIREMENT AND THE GOLD STANDARD: THEORY, FACT AND POLICY Cape Breton University.
^ Historical dominance on money changing business
^ Islamic Finance, Forbes (April 21, 2008)
^ Sohrab Behada, "Property Rights in Contemporary Islamic Economic Thought, Review of Social Economy, Summer 1989 v.47, (pp.185-211)
^ Kuran, "The Economic Impact of Islamic Fundamentalism," in Marty and Appleby Fundamentalisms and the State, U of Chicago Press, 1993, p.302-41
^ "The Discontents of Islamic Economic Mortality" by Timur Kuran, American Economic Review, 1996, p.438-442
^ a b Halliday, Fred, 100 Myths about the Middle East, Saqi Books, 2005 p.89
Bibliography
Muhammad Nijatullah Siddiqui, Muslim Economic Thinking, (Islamic Foundation, Leicester, UK)
Syed Nawab Haider Naqi, Ethics and Economics: An Islamic Synthesis, (Islamic Foundation, Leicester, UK)
M. Umar Chapra, Islam and the Economic Challenge, (Islamic Foundation, Leicester, UK)
Aly KhorshidAly Khorshid, Islamic finance Scholar and Shari'ah Consultant, ( Elite Horizon Economic Consultancy, UK)
Angelo M. Venardos, Islamic Banking & Finance in South-East Asia: Its Development & Future, (World Scientific Publishing, Singapore)
Abbas Mirakhor, Theoretical Studies in Islamic Banking and Finance, (Islamic Publications International)
Islamic Banking, Finance & Economics by Maryam Ayaz
Fatwa Dewan Syariah Nasional - Majelis Ulama Indonesia Fatwa about many issues in Islamic Economics
Islamic Economics book list
Islamic Banking references
Islamic Banking references (GDRC)
Bakhash, Shaul, The Reign of the Ayatollahs, Basic Books, c1984
Behdad, Sohrab and Farhad Nomani, eds., Islam and the Everyday World: Public Policy Dilemmas, Routledge, 2006, ISBN 0-415-36823-5
Addas, Waleed. Methodology of Economics: Secular versus Islamic, IIUM, 2008, ISBN 978-983-3855-28-5
Halliday, Fred, 100 Myths about the Middle East, Saqi Books, 2005
Nomani, Farhad; Rahnema, Ali. (1994). Islamic Economic Systems. New Jersey: Zed books limited. pp. 7–9. ISBN 1-85649-058-0.
Roy, Olivier, The Failure of Political Islam Harvard University Press
economics in accordance with Islamic law. Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; i.e. it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, etc. where the state does not follow Islamic law.
The former paradigm, particularly as developed by modern Shia scholars such as Mahmoud Taleghani, and Mohammad Baqir al-Sadr, seeks not only to enforce Islamic regulations on issues such as Zakat, Jizya, Nisab, Khums, Riba, insurance and inheritance, but to implement broader economic goals and policies of an Islamic society. It seeks an economic system based on uplifting the deprived masses, a major role for the state in matters such as circulation and equitable distribution of wealth and ensuring participants in the marketplace are rewarded for being exposed to risk and/or liability. Islamists movements and authors will generally describe this system as being neither Socialist nor Capitalist, but a third way with none of the drawbacks of the other two systems.The latter paradigm is of necessity more limited, revolving around a few main tenets of Islam: the payment of zakat charity by believers, borrowing and lending without payment of fixed interest (riba), and socially responsible investing. The key difference from a financial perspective is the no-interest rule since most other religions favor charitable giving and socially responsible investing. The belief that the prohibition of investment with interest charges is essential for an Islamic society is widespread, though liberal movements within Islam may deny the need for this prohibition, since they see Islam as generally compatible with modern secular institutions and law.
Contents
1 History
1.1 Early reforms under Islam
1.2 Capitalist market economy
1.3 Classical Muslim economic thought
1.4 Post-colonial era
1.5 Traditional approach
2 Property
2.1 Public property
2.2 State property
2.3 Private property
3 Market
3.1 Interference
3.2 Islamic insurance
4 Banking
4.1 Interest
4.2 Debt arrangements
4.3 Money changers
5 Natural capital
6 Welfare
7 Islamic stocks
8 Popularity and availability
9 Business Method Patents
10 Views
10.1 Criticism
12 References
13 Bibliography
History
Main article: Islamic economics in the world
Traditional Islamic concepts having to do with economics included
zakat - the "taxing of certain goods, such as harvest, with an eye to allocating these taxes to expenditures that are also explicitly defined, such as aid to the needy."
Gharar - "the interdiction of chance ... that is, of the presence of any element of uncertainty, in a contract (which excludes not only insurance but also the lending of money without participation in the risks)"
Riba - "referred to as usury" [3]
These concepts, like others in Islamic law, came from the "prescriptions, anecdotes, examples, and words of the Prophet, all gathered together and systematized by commentators according to an inductive, casuistic method." [3] Sometimes other sources such as al-urf, (the custom), al-aql (reason) or al-ijma (consensus of the jurists) were employed.[4]
In addition, Islamic law has developed areas of law that correspond to secular laws of contracts and torts.
Early reforms under Islam
Main article: Early reforms under Islam
Some argue early Islamic theory and practice formed a "coherent" economic system with "a blueprint for a new order in society, in which all participants would be treated more fairly". Michael Bonner, for example, has written that an "economy of poverty" prevailed in Islam until 13th and 14th century. Under this system God's guidance made sure the flow of money and goods was "purified" by being channeled from those who had much of it to those who had little by encouraging zakat (charity) and discouraging riba (usury/interest) on loans. Bonner maintains the prophet also helped poor traders by allowing only tents, not permanent buildings in the market of Medina, and not charging fees and rents there.[5]
Capitalist market economy
Main article: Islamic economics in the world
The origins of capitalism and free markets can be traced back to the Islamic Golden Age and Muslim Agricultural Revolution,[6] where the first market economy and earliest forms of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".[7] A vigorous monetary economy was created by Muslims on the basis of the expanding levels of circulation of a stable high-value currency (the dinar) and the integration of monetary areas that were previously independent. Innovative new business techniques and forms of business organisation were introduced by economists, merchants and traders during this time. Such innovations included the earliest trading companies, big businesses, contracts, bills of exchange, long-distance international trade, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal),[8] circulating capital, capital expenditure, revenue, cheques, promissory notes,[9] trusts (see Waqf), startup companies,[10] savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system,[11] and lawsuits.[12] Organizational enterprises similar to corporations independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced.[13][14] Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.[8]
The systems of contract relied upon by merchants was very effective. Merchants would buy and sell on commission, with money loaned to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian and Jewish. Recently, a collection of documents was found in an Egyptian synagogue shedding a very detailed and human light on the life of medieval Middle Eastern merchants. Business partnerships would be made for many commercial ventures, and bonds of kinship enabled trade networks to form over huge distances. Networks developed during this time enabled a world in which money could be promised by a bank in Baghdad and cashed in Spain, creating the cheque system of today.[citation needed] Each time items passed through the cities along this extraordinary network, the city imposed a tax, resulting in high prices once reaching the final destination. These innovations made by Muslims and Jews laid the foundations for the modern economic system.
Classical Muslim economic thought
Statue of Ibn Khaldoun in Tunis
Main article: Islamic economics in the world
To some degree, the early Muslims based their economic analyses on the Qu'ran (such as opposition to riba, meaning usury or interest), and from sunnah, the sayings and doings of prophet Muhammad.
Perhaps the most well known Islamic scholar who wrote about economics was Ibn Khaldun (1332–1406),[15] who is considered a father of modern economics.[16][17] 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.[18] 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.[19] He also noted macroeconomic forces of population growth, human capital development, and technological developments effects on development.[20] In fact, Ibn Khaldun thought that population growth was directly a function of wealth.[21]
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.
Post-colonial era
During the modern post-colonial era, as Western ideas, including Western economics, began to influence the Muslim world, some Muslim writers sought to produce an Islamic discipline of economics. Because Islam is "not merely a spiritual formula but a complete system of life in all its walks", [22] these writers believed that it should logically follow that Islam also had its own economic system unique from and superior to non-Islamic systems. [23] To date, however, there have been no agreement as to the methodological definition and scope of Islamic Economics.
In the 1960s and 70s Shia Islamic thinkers worked to develop a unique Islamic economic philosophy with "its own answers to contemporary economic problems." Several works were particularly influential,
Eslam va Malekiyyat (Islam and Property) by Mahmud Taleqani (1951),
Iqtisaduna (Our Economics) by Mohammad Baqir al-Sadr (1961) and
Eqtesad-e Towhidi (The Economics of Divine Harmony) by Abolhassan Banisadr (1978)
Some Interpretations of Property Rights, Capital and Labor from Islamic Perspective by Habibullah Peyman (1979).[24] [25]
Al-Sadr in particular has been described as having "almost single-handedly developed the notion of Islamic economics" [26]
In their writings Sadr and the other authors "sought to depict Islam as a religion committed to social justice, the equitable distribution of wealth, and the cause of the deprived classes," with doctrines "acceptable to Islamic jurists", while refuting existing non-Islamic theories of capitalism and Marxism. This version of Islamic economics, which influenced the Iranian Revolution, called for public ownership of land and of large "industrial enterprises," while private economic activity continued "within reasonable limits." [27] These ideas helped shape the large public sector and public subsidy policies of the Iranian Islamic revolution.
In the 1980s and 1990s, as the Islamic revolution failed to reach the per capita income level achieved by the regime it overthrew, and Communist states and socialist parties in the non-Muslim world turned away from socialism, Muslim interest shifted away from government ownership and regulation. In Iran, it is reported that "eqtesad-e Eslami (meaning both Islamic economics and economy) ... once a revolutionary shibboleth, is indubitably absent in all official documents and the media. It disapperared from Iranian political discourse about 15 years ago [1990]." [25]
But in other parts of the Muslim world the term lived on, shifting form to the less ambitious goal of interest-free banking. Some Muslim bankers and religious leaders suggested ways to integrate Islamic law on usage of money with modern concepts of ethical investing. In banking this was done through the use of sales transactions (focusing on the fixed rate return modes) to achieve similar results to interest. This has been heavily criticised by many modern writers as a means of covering conventional banking with an Islamic facade.
In 2008 an economist and former advisor to Tony Blair, Tahir Iqbal, resolved the existing issues in Islamic economics of both providing a fully shariah compliant Islamic political economy (including the problem of government borrowing and mortgages) in his book "what is the sound of an invisible hand clapping", published by maison mascara books. The foundation of this was the quard al hasana (good debt)which when introduced with zakat on all assets sets in place a new framework that solves boom and bust and implies that poverty itself could be stopped using Islamic economics.
Traditional approach
While many Muslims believe Islamic law is perfect by virtue of its being revealed by God, Islamic law on economic issues was/is not "economics" in the sense of a systematic study of production, distribution, and consumption of goods and services. An example of the traditionalist ulama approach to economic issues is Imam Khomeini's work Tawzih al-masa'il where the term `economy` does not appear and where the chapter on selling and buying (Kharid o forush) comes after the one on pilgrimage. As Olivier Roy puts it, the work "presents economic questions as individual acts open to moral analysis: `To lend [without interest, on a note from the lender] is among the good works that are particularly recommended in the verses of the Quran and the in the Traditions.`" [28]
Property
The Qur'an states that God is the sole owner of all matter in the heavens and the earth.[29] Man, however, is God's viceregent on earth and holds God's possessions in trust (amanat). Islamic jurists have divided properties into three categories:[30]
Public property
State property
Private property
Public property
Public property in Islam refers to natural resources (forests, pastures, uncultivated land, water, mines, oceanic resources etc.) over which all humans have equal right. Such resources are considered the common property of the community. Such property is placed under the guardianship and control of the Islamic state, and can be utilized by any citizen, as long as it does not undermine the right of other citizens over it.[30]
Some types of public property can not be privatized under Islamic law. Muhammad's saying that "people are partners in three things: water, fire and pastures", has led some scholars to believe that the privatization of water, energy and agricultural land is not permissible. Other types of public property, such as gold mines, were allowed by Muhammad to be privatized, in return for taxes to the Islamic state. The owner of the previously public property that was privatized has to pay zakat and, according Shiite scholars, khums as well. In general the privatization and nationalization of public property is subject to debate amongst Islamic scholars. Public property thus, eventually, becomes state or private property.[30]
State property
State property includes certain natural resources, as well as other property that can't immediately be privatized. Islamic state property can be movable, or immovable, can be acquired through conquest, or peaceful means. Unclaimed, unoccupied and heir less properties, including uncultivated land (mawat), can be considered state property.[30]
During the life of Muhammad, one fifth of military equipment captured from the enemy in the battlefield was considered state property. During his reign, Umar (on the recommendation of Ali) considered conquered land to be state property, instead of private property (as was usual practice). The reason for this was that privatizing this property would concentrate resources in the hands of a few, and prevent this property from being used for the general good of the community. The property remained under the occupation of the cultivators, but the taxes collected on it went to the state treasury.[30]
Muhammad said "Old and fallow lands are for God and His Messenger (i.e. state property), then they are for you". Jurists draw from this the conclusion that, ultimately, private ownership takes over state property.[30]
Private property
There is consensus amongst Islamic jurists and social scientists that Islam recognizes and upholds the individual's right to private ownership. The Qur'an extensively discusses taxation, inheritance, prohibition against stealing, legality of ownership, recommendation to give charity and other topics related to private property. Islam also guarantees the protection of private property by imposing stringent punishments on thieves. Muhammad said that he who dies defending his property was like a martyr.[31]
Islamic economists have classified the acquisition of private property into three categories: involuntary, contractual and non-contractual. Involuntary means are inheritance, bequests, and gifts. Non-contractual is acquisition involves the collection and exploitation of natural resources that have not previously been claimed as private property. Contractual acquisition includes activities such as trading, buying, renting, hiring labor etc.[31]
A tradition attributed to Muhammad, with which both Sunni and Shi'ite jurists agree, in cases where the right to private ownership causes harm to others, then Islam is in favor of curtailing the right in those cases. Maliki and Hanbali jurists argue that if private ownership endangers public interest, then the state can limit the amount an individual is allowed to own. This view, however, is debated by others.[31]
Market
Islam accepts markets as the basic co-ordinating mechanism of the economic system. Islamic teaching holds that the market, through perfect competition, allows consumers to obtain desired goods, producers to sell their goods, at a mutually acceptable price.[32]
The three necessary conditions for an operational market are said to be upheld in Islamic primary sources:[32]
Freedom of exchange: the Qur'an calls on believers to engage in trade, and rejects the contention that trade is forbidden.[33]
Private ownership (see above).
Security of contract: the Qur'an calls for the fulfillment and observation of contracts.[34] The longest verse of the Qur'an deals with commercial contracts involving immediate and future payments.[35]
Interference
Islam promotes a market free from interferences such as price fixing and hoarding. Government intervention, however, is tolerated under specific circumstances.[32]
Islam prohibits the fixation of a price by a handful of buyers or sellers who have become dominant in the market. During the days of Muhammad, a small group of merchants used to meet agricultural producers outside the city and bought the entire crop, thereby gaining monopoly over the market. The produce was later sold at a higher price within the city. Muhammad condemned this practice since it caused injury both to the producers (who in the absence of numerous customers were forced to sell goods at a lower price) and the inhabitants of Medina.[32]
The above mentioned reports are also used to justify the argument that the Islamic market is characterized by free information. Producers and consumers should not be denied information on demand and supply conditions. Producers are expected to inform consumers of the quality and quantity of goods they claim to sell. Some scholars hold that if an inexperienced buyer is swayed by the seller, the consumer may nullify the transaction upon realizing the seller's unfair treatment. The Qur'an also forbids discriminatory means of transaction.[36][32]
Government interference in the market is justified in exceptional circumstances, such as the protection of public interest. Under normal circumstances, government non-interference should be upheld. When Muhammad was asked to set the price of goods in a market he responded, "I will not set such a precedent, let the people carry on on with their activities and benefit mutually."[32]
Islamic insurance
A book by Dr Aly Khorshid "Islamic insurance, with modern approach to Islamic Banking" Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme.
Banking
Main article: Islamic banking
Interest
Islamic economic institutions, not just the Islamic bank but all those connected with Islamic banking operates on the basis of "zero interest." Critics of Islamic economics argue, however, that the fundamental characteristic of charging interest (i.e. charging a premium, on the principal amount of a loan, for the time value of the loaned money) is not truly eliminated in Islamic banking, but rather the interest is merely hidden and relabeled. However, where interest paid at the end of the time period depend on how long one took to make the repayments, the total Islamic mark-up is fixed regardless of how long one took to repay his dues. I.e, it is a profit margin on a sale, and not a time value of money.
For example, consider the practical reality of purchasing a vehicle from an Islamic bank under an allegedly "zero interest" loan. The procedure, generally, is that the client tells the Islamic bank which vehicle he or she would like to own. The Islamic bank then purchases that vehicle in its name, and sells it to the client at a marked-up price, under an agreement that the new marked-up price of the vehicle must be paid in a certain number of installments of a certain time period. Thus a $20,000 car might cost $35,000 if purchased from an Islamic bank at "zero interest," 5 year loan. One may reason that the Islamic bank charges the extra $15,000 on top of the $20,000 cost of the car because money has a time value (that is to say, a payment of $20,000 5 years from now is worth less than a payment of $20,000 today). This is also why a $20,000 car could cost $35,000 if the purchase were financed by an interest bearing loan issued by a non-Islamic financial institution. However, where under an Islamic bank one would end up paying the extra $15,000 no matter how quickly he pays his 'loan', under non-Islamic banking one can end up paying less if he repays his loans quicker, or more if he takes longer. The aforementioned transaction utilizes valid sales transactions called murabaha, but violates Islamic law by the bank usually not taking delivery or connecting two independent contracts or taking of legally enforceable guarantees from the buyer.
Usually, time value of money is compensated to the lender by the lender charging the borrower interest on the principal amount of the loan. Islam prohibits time value of money in itself as producing no value - in conjunction with other value driven agreements the idea is entertained.
In the case of Islamic banking, the lost time value is compensated by utilizing a sales contract, charging a mark-up on the home or vehicle that the client might be seeking to purchase by way of a loan. The vehicle or mortgage usually remains in the name of the bank, until the principal loan including the mark-up has been paid. In the case of a business loan, instead of charging interest over the time that the principal amount is loaned out, an Islamic bank will demand a certain percentage of the borrower's business profits for an indefinite period of time. So it is the principle of sharing and the bank is a partner who obtains losses as profits. This is because of a law in the Islamic financial theory that you are not allowed to enjoy the profits if you did not take its risk based on the famous tradition, al-kharaj bi damaan - return is determined by exposure to risk/liability.
Under a conventional interest based loan it is possible to "call" the loan if the interest rate drops and the borrower finds that he can find cheaper financing (i.e. pays off the entire loan before the end of its term, thus paying less interest). However, there is no way to call a loan issued by an Islamic bank. Thus, while the borrower from an Islamic bank is protected against interest rate increases, the borrower cannot benefit from interest rate drops.
In theory, Islamic banking should be synonymous with full-reserve banking, with banks achieving a 100% reserve ratio.[37]
Debt arrangements
Most Islamic economic institutions advise participatory arrangements between capital and labor. The latter rule reflects the Islamic norm that the borrower must not bear all the cost of a failure, as "it is God who determines that failure, and intends that it fall on all those involved."
Conventional debt arrangements are thus usually unacceptable - but conventional venture investment structures are applied even on very small scales. However, not every debt arrangement can be seen in terms of venture investment structures. For example, when a family buys a home it is not investing in a business venture - a person's shelter is not a business venture. Similarly, purchasing other commodities for personal use, such as cars, furniture, and so on, cannot realistically be considered as a venture investment in which the Islamic bank shares risks and profits for the profits of the venture.
Money changers
Due to religious sanctions against odious debt, Tamil Muslims have historically been money changers (not money lenders) throughout South and South East Asia.[38]
Natural capital
Perhaps due to resource scarcity in most Islamic nations, this form of economics also emphasizes limited (and some claim also sustainable) use of natural capital, i.e. producing land. These latter revive traditions of haram and hima that were prevalent in early Muslim civilization.
Welfare
Social welfare, unemployment, public debt and globalization have been re-examined from the perspective of Islamic norms and values. Islamic banks have grown recently in the Muslim world but are a very small share of the global economy compared to the Western debt banking paradigm. It remains to be seen[vague] if they will find niches - although hybrid approaches, e.g. Grameen Bank which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern human development theory.
Islamic stocks
In June 2005 Dow Jones Indexes, New York, and RHB Securities, Kuala Lumpur, teamed up to launch a new "Islamic Malaysia Index" —a collection of 45 stocks representing Malaysian companies that comply with a variety of Sharia-based criteria. Three variables (the total debt of an indexed company, its total cash plus interest-bearing securities and its accounts receivables) must each be less than 33% of the trailing 12-month average capitalization, for example.
Popularity and availability
Main article: Islamic economics in the world
Today there are many financial institutions, even in the Western world, offering financial services and products in accordance with the rules of the Islamic finance. For example, legal changes introduced by Chancellor Gordon Brown in 2003, have enabled British banks and building societies to offer so-called Muslim mortgages for house purchase.
In 2004 the UK's first stand alone Sharia'a compliant bank was launched, the Islamic Bank of Britain. Several banks offer products and services to its UK customers that utilise the Islamic financial principles; such as Mudaraba, Murabaha, Musharaka and Qard.
The Islamic finance sector was worth between 300 and 500 billion dollars (237 and 394 billion euros) as of September 2006, compared with 200 billion dollars in 2004. The number of Islamic retail banks and investment funds number in their hundreds and many Western financial institutions offer products that comply with Sharia law, including Citigroup, Deutsche Bank, HSBC, Lloyds TSB and UBS. In 2008, at least $500 billion in assets around the world were managed in accordance with Sharia, or Islamic law, and the sector was growing at more than 10% per year. Islamic finance seeks to promote social justice by banning exploitative practices. In reality, this boils down to a set of prohibitions--on paying interest, on gambling with derivatives and options, and on investing in firms that make pornography or pork.[39]
Business Method Patents
With the recent ability to patent new methods of doing business in the United States, a small number of patent applications have been filed on methods for providing Sharia compliant financial services. These pending patent applications include:
US patent US20030233324A1Declining balance co-ownership financing arrangement. This discloses an allegedly Sharia compliant financing arrangement for home purchases and refinances that does not involve the payment of interest.
WO patent WO06068837A2 Controlling a Computer System Enabling Sharia-Compliant Financing. This discloses an improved computer system for carrying out Sharia compliant financial transactions.
Views
Sohrab Behada's study argued that the economic system proposed by Islam is essentially a capitalist one.[40]
Criticism
Its popularity notwithstanding, critics of Islamic economics have not been sparing. It has been attacked for its alleged "incoherence, incompleteness, impracticality, and irrelevance;" [41] driven by "cultural identity" rather than problem solving.[42] Others have dismissed it as "a hodgepodge of populist and socialist ideas," in theory and "nothing more than inefficient state control of the economy and some almost equally ineffective redistribution policies," in practice. [43]
In a political and regional context where Islamist and ulema claim to have an opinion about everything, it is striking how little they have to say about this most central of human activities, beyond repetitious pieties about how their model is neither capitalist nor socialist.[43]
Talking finance, although none of the above critics provide empirical evidence on the alleged claims; however, the so far withstanding critic of the Islamic financial practice pertains to its product’s structure. Interest-bearing (Riba) and speculation-involving (Gharar) trading are clearly prohibited by explicit canonical texts. Therefore presumably all the financial structures of all the Islamic products should be interest and speculation free. Nevertheless, some new empirical studies hypothesize that “Islamic finance products’ structure is based on the Islamic prohibitions; however, these products’ risk management is still based on revoking the underlying prohibitions”. The most prominent case here is Islamic financial market products such as, inter alia, Salam and Istisna’ these products are used are hedging methods for the Islamic bonds Sukuk. If Sukuk’s originator or investors wish to hedge against interest rate or exchange rate risks then they have to use one of the former methods. These methods as they originally mimic the conventional risk management practice, should involve either interest-bearing or speculation-bearing trading or even both. There have been some innovations that try to avoid falling in interest-based and/or speculation based transactions. Parallel Salam and synthetics are the most recent.
References
^ a b Islam and Economic Justice: A 'Third Way' Between Capitalism and Socialism?
^ a b How Do We Know Islam Will Solve the Problems of Poverty and Inequality?
^ a b Roy, The Failure of Political Islam Harvard University Press, 1994, p.132
^ Schirazi, Asghar, Constitution of Iran, (1997), p.170
^ Michael Bonner, "Poverty and Economics in the Qur’an", Journal of Interdisciplinary History, xxxv:3 (Winter, 2005), 391–406
^ The Cambridge economic history of Europe, p. 437. Cambridge University Press, ISBN 0521087090.
^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [81, 83, 85, 90, 93, 96].
^ a b Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism 15 (1), pp. 47–74, Brill Publishers.
^ Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie Constable (2001), Medieval Trade in the Mediterranean World: Illustrative Documents, Columbia University Press, ISBN 0231123574.
^ Timur Kuran (2005), "The Absence of the Corporation in Islamic Law: Origins and Persistence", American Journal of Comparative Law 53, pp. 785–834 [798–9].
^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [92–3].
^ Ray Spier (2002), "The history of the peer-review process", Trends in Biotechnology 20 (8), p. 357-358 [357].
^ Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", Comparative Studies in Society and History 41, pp. 263–93. Cambridge University Press.
^ Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", MERIP Reports 68, pp. 3–14 [8, 13].
^ Schumpeter (1954) p 136 mentions his his sociology, others, including Hosseini (2003) emphasize him as well
^ I. M. Oweiss (1988), "Ibn Khaldun, the Father of Economics", Arab Civilization: Challenges and Responses, New York University Press, ISBN 0887066984.
^ Jean David C. Boulakia (1971), "Ibn Khaldun: A Fourteenth-Century Economist", The Journal of Political Economy 79 (5): 1105-1118.
^ Weiss (1995) p29-30
^ Weiss (1995) p31 quotes Muqaddimah 2:276-278
^ Weiss (1995), p. 31, quotes Muqaddimah 2: 272-273
^ Weiss (1995), p. 33
^ The Economic Life of Islam
^ Michael Bonner, "Poverty and Economics in the Qur’an", Journal of Interdisciplinary History, xxxv:3 (Winter, 2005), 391–406
^ Bakhash, Shaul, The Reign of the Ayatollahs, Basic Books, c1984, p.167-8
^ a b Revolutionary Surge and Quiet Demise of Islamic Economics in Iran
^ The Renewal of Islamic Law
^ Bakhash, Shaul, The Reign of the Ayatollahs, Basic Books, c1984, p.172-3
^ Roy, The Failure of Political Islam Harvard University Press, 1994, p.133
^ Nomani and Rahnema quote Qur'an 2:107, Qur'an 2:255, Qur'an 2:284, Qur'an 5:120, Qur'an 48:14
^ a b c d e f Nomani and Rahnema (1994), p. 66-70
^ a b c Nomani and Rahnema (1994), p. 71-77
^ a b c d e f Nomani and Rahnema (1994), p. 55-58
^ Nomani and Rahnema cite Qur'an 4:29, Qur'an 2:275 and Qur'an 2:279
^ Nomani and Rahnema cite Qur'an 5:1, Qur'an 16:91, Qur'an 23:8, Qur'an 17:34 and Qur'an 70:32
^ Nomani and Rahnema cite Qur'an 2:282.
^ Nomani and Rahnema cite Qur'an 55:9, Qur'an 26:181–183, Qur'an 11:84–85. They also point out that a chapter is devoted to such fraudulent practices: Qur'an 83:1–3
^ A MONETARY SYSTEM WITH 100-PER CENT RESERVE REQUIREMENT AND THE GOLD STANDARD: THEORY, FACT AND POLICY Cape Breton University.
^ Historical dominance on money changing business
^ Islamic Finance, Forbes (April 21, 2008)
^ Sohrab Behada, "Property Rights in Contemporary Islamic Economic Thought, Review of Social Economy, Summer 1989 v.47, (pp.185-211)
^ Kuran, "The Economic Impact of Islamic Fundamentalism," in Marty and Appleby Fundamentalisms and the State, U of Chicago Press, 1993, p.302-41
^ "The Discontents of Islamic Economic Mortality" by Timur Kuran, American Economic Review, 1996, p.438-442
^ a b Halliday, Fred, 100 Myths about the Middle East, Saqi Books, 2005 p.89
Bibliography
Muhammad Nijatullah Siddiqui, Muslim Economic Thinking, (Islamic Foundation, Leicester, UK)
Syed Nawab Haider Naqi, Ethics and Economics: An Islamic Synthesis, (Islamic Foundation, Leicester, UK)
M. Umar Chapra, Islam and the Economic Challenge, (Islamic Foundation, Leicester, UK)
Aly KhorshidAly Khorshid, Islamic finance Scholar and Shari'ah Consultant, ( Elite Horizon Economic Consultancy, UK)
Angelo M. Venardos, Islamic Banking & Finance in South-East Asia: Its Development & Future, (World Scientific Publishing, Singapore)
Abbas Mirakhor, Theoretical Studies in Islamic Banking and Finance, (Islamic Publications International)
Islamic Banking, Finance & Economics by Maryam Ayaz
Fatwa Dewan Syariah Nasional - Majelis Ulama Indonesia Fatwa about many issues in Islamic Economics
Islamic Economics book list
Islamic Banking references
Islamic Banking references (GDRC)
Bakhash, Shaul, The Reign of the Ayatollahs, Basic Books, c1984
Behdad, Sohrab and Farhad Nomani, eds., Islam and the Everyday World: Public Policy Dilemmas, Routledge, 2006, ISBN 0-415-36823-5
Addas, Waleed. Methodology of Economics: Secular versus Islamic, IIUM, 2008, ISBN 978-983-3855-28-5
Halliday, Fred, 100 Myths about the Middle East, Saqi Books, 2005
Nomani, Farhad; Rahnema, Ali. (1994). Islamic Economic Systems. New Jersey: Zed books limited. pp. 7–9. ISBN 1-85649-058-0.
Roy, Olivier, The Failure of Political Islam Harvard University Press
Subscribe to:
Posts (Atom)
Posts
