By Ahmed Sanusi
(Fin Sec, El-Ansar Cooperative Society)
• In the name of Allah, the most Beneficent, the
Most Merciful. May Allah peace and blessing be
on to prophet Muhammad (S.A.W), his family and
on to his companion.
• Islam places great emphasis on the code of lawful
and unlawful transactions. Many Quranic verses
disapprove wrongful taking of property.
• Say, the Quran:
• Do not devour one another property wrongfully,
nor throw it before judges in order to devour a
portion of other’s property sinfully and
knowingly. (2:188)
• Do not devour one another property wrongfully,
unless it is by trade based on mutual
• Prophet (SWS) was asked. What form of gain is
the best? He said a man’s work with his hands,
and every legitimate sale.(Ahmad, No. 1576).
• From above its clear that we should avoid illegitimate means of earning
provisions and livelihood and matters that are dubious and doubtful.
Therefore, Allah has permitted trading (business) and forbidden usury
• The emergence of Islamic banks and other financial institutions in 1970s
have stimulated modern literatures that have identified ways of
addressing Islamic accounting. The increase in financial crime,
misappropriation of fund and several corporate scandals and failure in
recent past has put more pressure to professional accounting bodies in
to new perception that goes beyond their stand, even though, the idea of
attaching religious adjective to accounting may seen to be embarrassing ,
unprofessional and even dangerous. This is true when they feel that
adjective’s Islam (other religion e.g Christian or Buddhist may at least
sound peaceful to them) is against standard but Islam demands sincerity
in work and purity of intention in business and other transaction.
• There are accounting books and records that corporate organization
should always maintain for preparation of financial information
(statements) and reports to their various users.
• Book keeping is an integral part of accounting; it is a way of recording
financial transactions. It involves recording money received, amount paid,
amount own other (otherwise known as creditors and debtors). It is the
means of recording financial information in a financial accounting system.
• It also involves recording the details of all the source documents in to
journals (also known as book of first entry or day books). The book keeper
is responsible for ensuring all transaction is recorded in a correct day
book- supplier ledger, customer ledger and general ledger.
• The primary books of account includes Cash Book, Bank Book, Purchase
Book and Sale Book, they are all for recording immediate effect of the
financial transaction.
• Day Book- this is record of the day-to-day financial transaction. The day
book details are enter formally in to journal and posted to ledgers:
• -Sales day book, Sales credit day book, purchases day book, cash day book.
• A petty Cash Book- this record of small value purchases before they are
later transferred to the ledger and final account.
• Journal- is a formal way of recording financial transaction before their
values are accounted for in the general ledger as credits and debits.
• Ledger- this is also record of account, it takes each financial transactions
from the journal and records them into corresponding account for every
• -Sales Ledger- it deals mostly with account receivables accounts
• - Purchase Ledger –it deals with purchasing transaction of an organization.
• - General Ledger- it represent five main account Assets, Liabilities, EQUITY,
Income and expenses.
• The data collected from journal and general ledgers are the one used to
prepare final account that is financial statement and report. Accuracy of
these books have to be well checked to make sure it comply with sharia,
since the report is made on the basis of those data collected from the
books for use.
Accurate book keeping is necessary for business to be
successful, because it help to keep track of cash flow,
monitoring and controlling expenses, tax and for evaluating
profitability and growth of the business.
• Islamic Accounting can be defined as the accounting process which
provides appropriate information (not necessary limited to financial
data) to stakeholders of an entity which will enable them to ensure
that entity is continuously operating within the bounds of the
Islamic sharia and delivering on its socioeconomic objective.
• In another word it is a tool which enables Muslim to evaluate their
own accountabilities to God (in respect to inter
human/environmental transaction).
• Conventional Accounting is defined as to be identification,
recording, classification and communicating economic events to
permit to make an informed decision (AAA, 1996).
• Both Islamic and conventional accounting is for business to provide
financial information.
Islamic Accounting
Conventional Accounting
Islamic Accounting is always sharia
compliance. It adheres to principle
and rules of sharia to achieve certain
socio-economic objectives.
It must always identify socioeconomic
and religious events and transactions.
It complies to set standard by
the national and international
accounting boards.
It must be holistic in its reporting; both
financial and non financial measures
regarding the economic, social,
environmental, religious events and
transaction are reported.
Income recognition, islam has
prohibited interest and other unlawful
Application of zakat on accumulated
wealth or net stock of assets.
It concentrates on identifying
economic events and
The accountings report is
prepared under the historical
cost concept to measure and
values assets and liabilities.
Recognised all form of income
that are not against western law.
Application of zakat not
applicable in conventional
Islam accounting should function not only as
service activity, providing financial information to
users and to public at large but more importantly,
accountants should discharge their accountability
by providing information to enable society to
follow God’s commandments.
In term of responsibility, the accountant in islam is
not only mere responsible to human superior, the
management/client or shareholders but he/she is
a servant and trustee to God in all situation.
1. Understandability-accounting information
should always be readily understandable by
2. Relevance-Financial information must be
relevant to the decision need.
3. Reliability- information should always be free
from material error and bias and can be
depended open by users.
4. Faithful Representation-information should be
faithful to present the economic reality of the
transaction and events.
Completeness- financial statement must complete within the
bounds of material and cost.
6. Comparability- users of the information must able compare
the financial statements of entity through time in order to
identify trends in its financial position and performance.
7. True and Fair view-Financial statements should always show
true and fair view of financial position, performance and
changes in financial position.
8. Other include; Timeliness, Balance between Benefit and cost,
Neutrality of information (free from bias).
9. The posting of similar transaction should be
perform by person independent from those
who recorded the transaction in daily and
other books.
10. Monthly or yearly report should be prepared
and should be able provide sufficient
11.Annual report prepared should be audited by
in depended body.
Cooperative society plays a vital role in providing goods and
services their members and also to the community.
Cooperative annual report, generally contain the balance sheet
and a income statement of operation.
This simple analysis focuses on the balance sheet and income
1. Balance Sheet. Cooperative society play a vital role in
providing goods and services to their patrons and also to the
Cooperative annual reports
Balance sheet of a cooperative society states its financial
position at the end of an operating period-a-12 month fiscal
year. It includes:
Current Assets-these include property, plant, and
equipment, investments and other assets.
Current Liabilities- these also include short and long term
debt, Member equities, and Accrued expenses.
2. Income Statement
The income statement shows the results of operations for
the past year and usually includes both current and
prior year. It lists all sources of revenue and expenses.
The statement measure the profitability of the
cooperative for the given period of time.
Income Statement include; Net sales, Cost of Goods sold, Gross Merging,
Service and Other income, Operating Expenses, Employee Expenses,
General Expenses, Depreciation, Bad debts, Bank charges and other
related expenses.
Net Income is the profit after all expenses have been deducted.
• 3. Note of account.
• These are series of notes or information that referred to in the main body
of the financial statement. It gives further detail on the numbers in the
account. The importance of these numbers should not be under
estimated, the account are not complete without the notes.
• The note helps to explain specific items as well as provide a more
comprehensive assessment of financial condition of cooperative.
• 4. Comparative Analyses Current with Previous
• Comparative statements are financial statements
that cover a different time frame, in a manner
that makes comparing line items from one period
to another for easy process and decision making.
It help to determine the present stage of business
whether the re growth in the organization or not,
and also to determine the area of strength and
Specimen of Balance Sheet
Specimen of Income Statements
Net Surplus
Reserve Fund xx%
Education Levy xx%
Executive Council’s Honorarium
AGM Expenses xx%
This appropriation depends on
the byelaw provision of
cooperative society.
• Good prepared financial report or statement
make cooperative society to strengthen it
economic position and that of its members. It
also helps the cooperative to develop
strategies to obtain goods and services to its
members at lower cost.
• Good financial report help cooperative
improve services and operating efficiency; It
create clear image of the organization.
• The following are some of recommendations that can help the
cooperative society to develop its financial transaction:
1. Transaction should always be record immediately when they occur.
2. Transaction should be classified according to their nature.
3. Receipts are to be recorded with details.
4. Payment should be recorded with sufficient explained on ledger.
5. Recorded transaction should always be carefully explained.
6. Any correction to a recorded transaction by overwriting or deletion
should always be proven that mistakes occur.
7. When account is closed, a specific sign should be place in the book
to reflect closure of the account.
8. All similar transaction recorded in the primary book are to be posted
to the specialized book to maintain for the type of transaction.
• Many Isalmic accounting system were developed and
implemented in muslin society to suit the need of
Islamic state with sharia compliance. Zakat and
prohibitation of interest in business transaction are
main factor contributed to the development of Islamic
accounting, book recording procedure and financial
reporting. These accounting systems necessitated the
establishment and specification for recording business
transaction and accounting procure.
• Therefore, it is important for muslim accountants to
adopt Islamic accounting procedure which are specially
adopted to Islamic needs

book keeping & accounting system in islam