Principles of Islamic Accounting

CHAPTER 2Recording Transactions and Market Values in Islam

Learning Objectives

After studying this chapter you should be able to:

1. Explain the main accounting concepts and their compliance with the Islamic Sharia.
2. Describe the importance of market values to the Islamic accounting system.
3. Explain transactions analysis using the accounting equation.
4. Record, post, and analyse transactions using an accounting system.
5. Prepare a trial balance.
6. Prepare a chart of accounts.
7. Prepare a simple set of Islamic financial statements.
8. Use accounting information to make decisions in an Islamic business environment.

Accounting concepts and principles provide the foundation of an Islamic accounting system. Islamic accounting shares many of the accounting principles that make the building blocks of conventional accounting. However, in Islamic accounting, these principles also have to comply with the Islamic Sharia.

ACCOUNTING CONCEPTS AND THE ISLAMIC SHARIA

The Accounting Entity Concept

The accounting entity concept requires the preparers of accounts to treat the organisation as a separate entity from that of the owners and principals. Boundaries are established between the organisation, and its owners, so that only the impact of economic events related to the organisation is reflected in the organisation's accounts.

Fatina Jabir, a young Emirati girl, started her own Abaya design and fashion business, Dar Al Fatina, in Al Ain in the UAE, with AED 1,000 of her own money. Fatina had ...