bai salam

Defination: Bai-Salam means advance sale and purchase. Bai means sale and purchase. Salam means advance.Bai-Salam is a contract between a Buyer and a seller under which the Seller sells in advance the certain commodities/products permissible under Islamic Shariah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the commodities/products are delived as per specification, size, quality, quantity at a future time in a particular place.

In other words, Bai-Salam is a sale whereby the seller undertakes to supply some specific commodities/products to the buyer at a future time in exchange of an advanced price fully paid on the spot.

Here the price is paid in cash, but the delivery of the goods is deferred.
Accounting for Bai Salam:
 

While purchasing 
1. Dr. Bai SalamCr. A/C , PO,
At the time of closing (normal)
2. Dr. Clients A/cCr. Bai SalamCr. Income Bai Salam
Fine Charge for delayed period as per contract
3. Dr. Bai SalamCr. Income Bai Salam
Closing Bai Salam (along with fine as per contract)
4. Dr. CACr. Bai SalamCr. Income (with fine amount)
Classified Bai Salam
5. Dr. Income ( unclassified overdue period)Dr. Bai Salam (Classified period)Cr. Fine Suspense Account(Bai Salam)
After BL Investment Income /Fine must be stopped

Difference between Baisalam and Istisna

1. Payment: (a) Bai-Salam: It is necessary that total payment is paid in advanced.
(b) Bai-Istisna: Total payment can be done upfront or at the end or by installment

2. Commodity:(a) Bai-Salam: Agricultural products, fungible or generic goods. E.g. Paddy rice, wheat, corn etc ( either manufacturing or not)

(b) Bai-Istisna: Construction or manufacturing products i.e. it is unique goods. E.g. Buildings,
set of table, car, gate etc (always needs manufacturing)
3. Canellation: (a) Bai-Salam: The contract of Salam, once effected, cannot be cancelled unilaterally,
(b) Bai-Istisna: The contract of Istisna can be cancelled before the manufacturer starts the
work
4. Time of delivery:(a) Bai-Salam: The time of delivery is an essential part of the sale in Salam
(b) Bai-Istisna: it is not necessary in Istina/ it can be fixed.
5. Penalty:(a) Bai-Salam: The penalty amount is paid to charity (not taken as benefit for the buyer).
(b) Bai-Istisna: Any penalty for charged late delivery can reduce the price of an Istisna
contract .