With the rapid digital transformation in Saudi Arabia’s business sector, choosing accurate inventory valuation methods has become increasingly important. The method each company adopts determines the value of its inventory at the end of the fiscal period and directly affects its tax results.
In this guide, we explain the fundamentals of inventory valuation, review the most common inventory valuation methods used in the Saudi market, and highlight how smart solutions from CODEIT and EZ Integrated unify inventory valuation with e-invoicing.
What Is Inventory Valuation and Why Is It Important?
Inventory valuation refers to the process of estimating the monetary value of goods available at the end of a financial period, whether raw materials or finished products ready for sale. This value is used to calculate the cost of goods sold and to determine profits or losses.
Accurate inventory valuation is essential for preparing financial statements and ensuring precise reports submitted to the Zakat, Tax and Customs Authority (ZATCA). It also helps companies make informed decisions about pricing, purchasing, and production planning.
The Difference Between Pricing and Inventory Valuation
Many business owners confuse pricing with valuation, although the two are fundamentally different.
Pricing refers to setting a selling price for customers based on market conditions and profitability.
Inventory valuation focuses on determining the accounting value of goods recorded in the books.
Understanding this difference affects the accuracy of both financial and tax reports. Businesses should also record inventory valuation entries at the end of each period to update balances and align them with inventory data and e-invoicing systems.
The Main Inventory Valuation Methods for Retailers and Manufacturers
Different inventory valuation methods apply depending on the business type and sales cycle, and each has its own impact on profit and taxation. Below are the most widely used methods in Saudi companies, factories, and stores.
1. First In, First Out (FIFO)
This method assumes that the first goods to enter the inventory are the first sold. It is widely used in fast-moving sectors such as food and pharmaceuticals. FIFO works best when prices are stable because it reflects values close to current market prices.
2. Last In, First Out (LIFO)
LIFO assumes that the most recent purchases are sold first, which increases the cost of sales when prices rise. This method suits industries affected by inflation, such as metals and raw materials.
3. Weighted Average Cost
This approach calculates inventory value based on the average cost of all purchased items. It is one of the most common inventory valuation methods because it balances accuracy and simplicity, especially for companies handling large, diverse product ranges.
4. Specific Identification
This method assigns the exact cost to each individual item. It is used for high-value goods or items with serial numbers such as cars, jewelry, or electronics.
In all cases, companies rely on end-of-period inventory valuation to close their fiscal year accurately and ensure consistency with financial and tax reports.
How Inventory Valuation Methods Affect Financial Reports and E-Invoicing
Choosing the wrong valuation method can cause discrepancies between inventory value, sales cost, and issued invoices.
Therefore, integrating inventory valuation methods with e-invoicing systems is critical for maintaining data consistency and ensuring compliance with ZATCA requirements in the second phase of e-invoicing, known as the Integration Phase.
How CODEIT Simplifies Inventory Valuation
CODEIT offers comprehensive digital solutions through its inventory management software, which automates multiple inventory valuation methods with ease. Through CODEIT, companies can:
- Select the most suitable valuation method (FIFO, LIFO, or Weighted Average).
- Generate instant reports on current inventory value.
- Match inventory data with sales and invoices.
- Manage inventory in real time through an intuitive interface.
These features make CODEIT’s inventory management program a practical tool for accountants and managers who need accurate data without manual effort.
EZ Integrated Solutions for E-Invoicing and Integration
EZ Integrated provides technology solutions approved by the Zakat, Tax and Customs Authority, offering direct integration with systems such as CODEIT or any approved accounting software. This integration allows Saudi businesses to:
- Link inventory valuation data with e-invoices in one unified system.
- Issue accurate invoices compliant with the Integration Phase of e-invoicing.
- Generate comprehensive financial reports that support both management and tax decisions.
- Achieve full compliance and reduce human error in accounting operations.
This intelligent connection between inventory valuation methods and e-invoicing enables Saudi companies to achieve higher levels of transparency and operational efficiency.
Start Applying Accurate Inventory Valuation Methods Today
Implementing the right inventory valuation methods directly improves profitability and ensures compliance with Saudi financial regulations. With the combined power of CODEIT and EZ Integrated, businesses can manage and value their inventory accurately while linking it automatically with e-invoicing.
Start today by adopting a unified valuation and invoicing system, and contact EZ Integrated to choose the most suitable solution for your business.