Inventory Management for Saudi Merchants: Counting, Valuation & Loss Prevention
A practical guide to inventory for Saudi retailers and trading companies: valuation methods (FIFO / Weighted Average), periodic vs perpetual counting, and loss reduction.
For most trading businesses, inventory is the largest line on the balance sheet — and the biggest source of errors. Theft, damage, count mistakes, and fluctuating purchase prices all hit net profit directly. This practical guide helps you control your inventory like a professional merchant.
Periodic vs perpetual inventory
Periodic
Count inventory once per period (monthly/yearly). Simple but reveals discrepancies late.
Perpetual
Every sale or purchase updates quantity and cost in real time. Needs a system but exposes shrinkage immediately.
Inventory valuation methods
The valuation method determines cost of goods sold, and therefore net profit and balance-sheet inventory value. The two IFRS-accepted methods are First-In-First-Out (FIFO) and Weighted Average. LIFO is not permitted under IFRS.
Worked example: FIFO vs Weighted Average
Bought 100 units at SAR 10, then 100 units at SAR 12. Sold 120 units. • FIFO: COGS = (100×10) + (20×12) = SAR 1,240. Closing stock = 80×12 = SAR 960. • Weighted Average: Avg cost = (1000+1200)/200 = SAR 11. COGS = 120×11 = SAR 1,320. Closing stock = 80×11 = SAR 880. Difference in net profit: SAR 80 on just one transaction.
Shrinkage & loss control
Barcode every product
Reduces entry errors and speeds counting by up to 80%.
Weekly cycle counting
Pick 10-20 random SKUs each week instead of one annual full count.
Segregation of duties
Receiving, issuing, and bookkeeping must not be done by the same person.
Min level & reorder point
Automatic alerts prevent stock-out of bestsellers.
Inventory impairment
Per IAS 2, inventory is measured at the lower of cost or net realizable value. When goods are damaged or obsolete, you must write them down and post an impairment in the income statement. Ignoring this triggers an auditor qualification on the financials.
SIDA manages inventory on a perpetual system, supports FIFO and Weighted Average, alerts on slow-moving and expiring items, and posts COGS journal entries automatically with every sales invoice.
Take control of your inventory with SIDA