What is Periodic Inventory System?
The periodic inventory system is a stock control approach in which inventory levels are updated only at the end of each accounting period through a full physical count, with cost of goods sold calculated as a residual rather than tracked continuously.
How It Works
- Purchases recorded to a purchases account during the period.
- Physical count at period-end determines ending inventory.
- COGS = opening inventory + purchases – closing inventory.
- Simpler and cheaper but no real-time stock visibility.
Saudi Context
Small Saudi traders and family businesses still use periodic systems when transaction volumes are low and inventory items are homogeneous. ZATCA accepts periodic costing for VAT purposes if the method is applied consistently, though Phase 2 e-invoicing requirements are pushing more Saudi businesses toward perpetual systems.
Example
A small Saudi trader opens with inventory of SAR 100,000, buys SAR 300,000 during the year, and counts SAR 80,000 at year-end. COGS = 100,000 + 300,000 – 80,000 = SAR 320,000.