Principles of Islamic Accounting

CHAPTER 4Islamic Financial Statements

Learning Objectives

After studying this chapter, you should be able to:

1. Prepare an accounting worksheet.
2. Complete the accounting cycle using an accounting worksheet.
3. Close the accounts of revenue, expense, and drawings.
4. Correct accounting errors.
5. Prepare a classified balance sheet.
6. Prepare basic Islamic finance statements.

THE ACCOUNTING CYCLE

The value chain from recording transactions in the journal, posting these records to the ledger, preparing the trial balance, and finally producing the financial statements is referred to as the accounting cycle. Once Dar Al Fatina was established in the City of Al Ain in the UAE, the accounting cycle starts with opening the books and recording the transactions taking place at the company, including the first transaction of the initial investment of AED1,000 as the capital of the owner Fatina Jabir. The accounting cycle ends with the preparation of the end-of-period financial statements. The accounting cycles for the following periods start with the balances of the accounts of the preceding period; new transactions are recorded, posted, a trial balance is prepared; and end-of-period financial statements are also prepared. This is done during every accounting period until the business is liquidated or sold.

At the end of the accounting period, the fair values of some assets and liabilities are estimated based on market conditions existing at the balance sheet date. In this chapter we show how ...