INTRODUCTION When one mentions banking or financial institutions, Islam banks don’t necessarily come readily to mind. There are a few reasons for this, one of which is that Islam banks, which are primarily religious in nature, tend to be vastly different from their Western counterparts, and could even be considered confusing to them.In this paper, we’ll examine the Islam economic system, discuss banks and other financial institutions in this system, and will discuss some of the accounting methods used in such a system. We’ll also examine current trends and disadvantages of the system as well.Islam banks and financial institutions do a lot more than the Western banks do (Ariff, 1998). They do so because Islam is based on religious practices, as opposed to hard-core business practices. Some experts point out, as well, that Islam banking, because of its nature, is a risky business, compared to conventional banking (Ariff, 1998). For one thing, risk-sharing forms a strong basis of all Islamic financial transactions (Ariff, 1998). Basically, everyone earns something, or everyone loses something in the trade. Banks, however, have put their eggs in more than one basket (according to Ariff) and have also established their reserve funds from past profits, so as to offset any potential major losses (Ariff, 1998).For the most part, Islamic practices when it comes to money don’t adapt themselves very well to more Anglo methods of accounting or finance (Rahman, 2000). Most experts point out that Islamic economics tends to work on very different considerations and theories than do Western economics, accounting and finance (Rahman, 2000).According to much of the literature on Islam banking (and its accounting practices), three things must be kept in mind. First, it’s interest free, an ...