Accounting and Finance Glossary

An accountant records a business's transactions, reviews its entries and prepares its financial and tax reports. In a small company one accountant often covers invoicing, collections, payroll and the VAT return; larger companies split the work between receivables, payables, cost and general accountants. The English title is the same for men and women.

Related: General Accountant, Auditor, Accounting, CFO

Accounting is recording a business's financial transactions, classifying them and summarising them in financial statements that show profit, financial position and cash flows. It starts with a source document (invoice, receipt, bank statement), moves to a journal entry, is posted to the general ledger, and ends in a trial balance and statements. Saudi entities apply IFRS as endorsed by SOCPA.

Related: Bookkeeping, Accounting Cycle, Financial Statements, IFRS

The accounting cycle is the sequence repeated every period: collect source documents, record journal entries, post to the ledger, run a trial balance, make adjusting entries, prepare the financial statements, then close the period and open the next. Most businesses close monthly for management reporting and annually for audited statements, zakat and tax.

Related: Journal Entry, Trial Balance, Adjusting Entries, Closing Entries

The accounting equation says a business's assets are financed either by outsiders (liabilities) or by its owners (equity): Assets = Liabilities + Equity. Every double entry keeps it in balance, which is why the balance sheet balances.

Example: Assets of SAR 500,000 and liabilities of 200,000 leave equity of SAR 300,000.

Related: Statement of Financial Position, Double-Entry Bookkeeping

An accounting period is the span results are measured over: a month, a quarter or a year. Splitting a business's life into periods is the reason adjusting entries exist, since each revenue and expense must be assigned to its own period. Many systems lock a period after review so no entry can be dated inside it.

Related: Fiscal Year, Adjusting Entries

Accounting principles are the bases for measurement and disclosure: accrual accounting, going concern, consistency between periods, materiality, and measurement at cost or fair value as each standard requires. In Saudi Arabia they come from the IFRS Conceptual Framework as endorsed by SOCPA rather than a separate local list.

Related: IFRS, Going Concern, Materiality, Accrual Basis

Accounts payable (AP) are amounts the business owes suppliers for purchases on credit. They are a current liability managed with a due-date schedule: paying early ties up cash, paying late damages the relationship and can stop deliveries.

Related: Accounts Receivable, Three-Way Match, Current Liabilities

Accounts receivable (AR) are amounts customers owe the business for sales on credit. They are a current asset tracked with an aging report: not yet due, 30, 60 and 90+ days overdue. The longer a balance is overdue, the less likely it is to be collected.

Related: Aging Report, DSO, Expected Credit Loss, Accounts Payable

The accrual basis records revenue when it is earned and expenses when they are incurred, whenever the cash moves. IFRS financial statements are prepared on this basis. A sale invoiced in December and collected in February is December revenue.

Related: Cash Basis, Adjusting Entries, Accrued Revenue, Accrued Expenses

Accrued expenses are costs used in the period but not yet paid or invoiced: last week's wages, December electricity billed in January. They are recorded with an adjusting entry, debit the expense and credit accrued expenses, and shown as a current liability.

Example: December electricity estimated at SAR 3,200: debit Utilities 3,200, credit Accrued Expenses 3,200.

Related: Prepaid Expenses, Adjusting Entries, Accrual Basis

Accrued revenue has been earned by delivering goods or services but not yet invoiced or received, such as a monthly maintenance contract billed quarterly. It is a current asset until the invoice is issued, when it becomes a receivable.

Related: Unearned Revenue, Accounts Receivable, Accrual Basis

An acquisition is buying a company, or a stake that gives control over it, or buying an existing business with its assets and customers. It is accounted for with the acquisition method: the assets and liabilities acquired are measured at fair value, and any excess of the price over them is goodwill. Larger deals may need clearance from the General Authority for Competition.

Related: Goodwill, Merger, Subsidiary

Adjusting entries are made at period end so revenue and expenses land in the period they belong to, not the period cash moved. They cover accrued and prepaid expenses, accrued and unearned revenue, depreciation and provisions. Without them a month's profit is overstated or understated.

Example: Annual rent of SAR 12,000 paid on 1 October: at 31 December, 3,000 is expensed and 9,000 stays as a prepayment.

Related: Accrual Basis, Accrued Expenses, Prepaid Expenses, Depreciation

An aging report splits each customer or supplier balance by invoice age: current, 1–30, 31–60, 61–90 and over 90 days. It tells you whom to chase first and is the basis for the expected credit loss allowance.

Related: Accounts Receivable, Expected Credit Loss, DSO

Amortization spreads the cost of a finite-life intangible asset over the period it is used, such as a three-year software licence or a franchise right. It is the intangible counterpart of depreciation and the A in EBITDA. The same word describes splitting a loan into principal and interest across its instalments.

Example: A SAR 36,000 software licence for 3 years is amortised at SAR 12,000 a year.

Related: Depreciation, Intangible Assets, EBITDA

Assets are resources a business controls as a result of past events and that are expected to bring it economic benefits: cash, inventory, receivables, equipment, buildings and software. They appear on the statement of financial position split into current and non-current assets.

Related: Current Assets, Non-Current Assets, Liabilities

An audit is an independent examination of financial statements and records that ends in an opinion on whether they present the financial position and performance fairly under the applicable standards. Companies need audited statements under the Companies Law, banks ask for them, and they often accompany the zakat return. An audit gives reasonable, not absolute, assurance.

Related: Auditor, Internal Audit, Materiality

An audit trail is a stored record of every action in a system: who created, changed or deleted a record, when, and the values before and after. It lets an auditor trace any figure in the statements back to its source document and exposes unauthorised changes.

Related: ERP, Internal Audit, Audit

An external auditor is the licensed chartered accountant who audits the financial statements and signs the audit report. In Saudi Arabia the auditor must hold a SOCPA licence to practise and be independent of the client. An internal auditor is an employee, and their work does not replace the external audit.

Related: Audit, SOCPA, Internal Audit

Bad debt is a receivable that will definitely not be collected, for example because the customer is bankrupt. It is written off against the allowance already made, or to expense if there was none. Recovering the VAT on a bad debt is subject to conditions in the VAT regulations.

Related: Expected Credit Loss, Accounts Receivable

A bank cheque, or banker's draft, is drawn by the bank on its own funds after it debits the customer's account, so it cannot bounce for lack of funds. It is used for large payments such as property or vehicle purchases, and banks charge a fee for it.

Related: Cheque

A bank reconciliation agrees the bank balance in the books with the bank statement on the same date and explains the difference: outstanding cheques, deposits in transit, and bank charges or transfers not yet booked. It is done at least monthly, and items that belong in the books are entered.

Example: A book balance of SAR 48,000 and unrecorded bank charges of 150: adjusted balance SAR 47,850.

Related: Cash on Hand, General Ledger

A barcode is a machine-readable symbol carrying an item number. A global GTIN is issued by GS1 and is what supermarket chains ask suppliers for; an internal barcode is generated by the business for use inside its own store or warehouse only.

Related: SKU, POS

The board of directors is elected by the shareholders' general assembly to steer the company and oversee its executives: approving strategy, budgets and financial statements, and appointing and holding the CEO to account. The Companies Law sets the framework for a joint stock company's board, and the company's bylaws fill in the details.

Related: CEO, Joint Stock Company

Book value, or carrying amount, is an asset's value in the books: cost less accumulated depreciation and impairment. It is not its market price. The term is also used for a company's equity on the balance sheet, which is compared with its market value.

Example: A machine costing SAR 20,000 with accumulated depreciation of 12,000 has a book value of SAR 8,000.

Related: Depreciation, Impairment, Market Cap

Bookkeeping is the day-to-day part of accounting: recording every transaction from its source document in the journal and posting it to the accounts as it happens. Analysis, reconciliations, statements and tax returns are the accountant's job on top of that. Poorly kept books usually surface during a tax audit or a bank loan application.

Related: Double-Entry Bookkeeping, General Journal, General Ledger, Accounting

The break-even point is the sales volume where revenue equals total costs, with neither profit nor loss. In units: fixed costs ÷ (unit price − variable cost per unit). Every unit sold beyond it adds its contribution margin to profit.

Example: Monthly fixed costs of SAR 30,000, a meal price of 40 and variable cost of 25: break-even at 2,000 meals.

Related: Managerial Accounting, Cost Accounting

A budget is a financial plan in numbers for a coming period: expected sales, expenses, purchases, cash flow and capital spending. Its value lies in the monthly comparison of plan against actual and in explaining the variances. It is built bottom-up from branches, top-down from management targets, or both.

Example: Budgeted monthly sales of SAR 200,000 against actual sales of 180,000: an adverse variance of SAR 20,000, or 10%.

Related: Managerial Accounting, Cash Flow, OPEX, CAPEX

The compound annual growth rate (CAGR) is the constant yearly rate that would take a figure from its starting value to its ending value. Formula: (ending value ÷ beginning value)^(1 ÷ years) − 1. It is useful for comparing growth in sales or investments over uneven years, though it hides the ups and downs.

Example: Sales growing from SAR 1,000,000 to 1,331,000 over 3 years: a CAGR of 10%.

Related: YoY, IRR

Capital expenditure (CAPEX) is spending to buy a long-term asset or to improve one so it lasts longer or does more: equipment, vehicles, fitting out a branch, systems. It is not charged to profit at once; it is recorded as a fixed asset and depreciated. In the cash flow statement it sits under investing activities.

Related: OPEX, Fixed Assets, Depreciation, Free Cash Flow

Capital is what the owners have put into a business in cash or in kind in exchange for their shares, as stated in the articles of association and the commercial register. It differs from working capital, which measures operating liquidity, and from capital expenditure, which means buying long-term assets.

Related: Equity, Working Capital, CAPEX

The cash basis records revenue only when cash is received and expenses only when paid. It is easy for a small shop to follow, but it hides what the business is owed and owes, and it does not comply with IFRS. It suits internal tracking; formal statements use the accrual basis.

Related: Accrual Basis, Cash Flow

Cash flow is the movement of cash into and out of a business over a period. A business can be profitable on paper and still unable to pay salaries because its sales are on credit or its stock is too high, which is why finance managers forecast cash weekly or monthly alongside profit.

Related: Statement of Cash Flows, Free Cash Flow, Working Capital

Cash on hand is the physical cash in the safe or the till, not in the bank. It is counted against the system balance every day at shift close; any difference is recorded as a shortage or overage and investigated, and it is kept separate from petty cash.

Related: Petty Cash, Shift Close, Bank Reconciliation

The Chief Executive Officer (CEO) is the most senior executive in a company. The CEO sets strategy with the board, leads the senior team and answers to the board for results. The board appoints the CEO and sets their authority, and the CEO may also sit on the board. In smaller firms the owner often holds the role.

Related: CFO, COO, Board of Directors

The Chief Financial Officer (CFO) is the senior executive responsible for a company's finances: accounting and reporting, budgeting and planning, cash and funding, banking relationships, zakat and tax, and internal controls. The CFO presents the numbers to the CEO and the board, while the chief accountant runs day-to-day bookkeeping and closing.

Related: CEO, COO, Budget, Accountant

A chart of accounts is the numbered list of every account a business uses, grouped in levels: assets, liabilities, equity, revenue and expenses, then their sub-accounts. Stable numbering keeps reports comparable across branches and years. It is designed before the first entry, because restructuring it after a year of postings is expensive.

Example: A numbering example: 1 Assets, 11 Current assets, 1101 Cash on hand, 1102 Bank.

Related: General Ledger, Cost Center, ERP

A cheque is a written order from an account holder to their bank to pay a set amount to a named person or the bearer on demand. It is governed by the Commercial Papers Law and shows the amount in figures and words. Writing a cheque without funds is an offence. British spelling is cheque, American is check.

Related: Bank Cheque, Post-Dated Cheque, Promissory Note

Clearance is the Phase 2 process in which a standard (business-to-business) tax invoice is sent to ZATCA's platform and cleared before it is shared with the buyer. A standard invoice must not reach the customer before clearance, unlike a simplified invoice, which is reported after issue.

Related: Reporting, E-Invoice

"Closed joint stock company" is the common name for a joint stock company that is not listed, so its shares are not offered to the public and change hands between a limited group. The Companies Law issued in 1443 AH (2022) reorganised company forms and added the simplified joint stock company, so check the legal form on the commercial register before using the label in a contract or in financial statements.

Related: Joint Stock Company, Commercial Registration

Closing entries reset revenue and expense accounts to zero at the end of the financial year and transfer the net profit or loss to retained earnings. The new year then starts with empty income statement accounts, while asset, liability and equity balances carry forward.

Related: Retained Earnings, Accounting Cycle, Fiscal Year

Commercial registration (CR) is a business's registration with the Ministry of Commerce, identified by a number shown on its contracts, letters and invoices. It records the trade name, legal form, activities, capital and manager, and banks, government bodies and customers ask for it before opening accounts or signing contracts.

Related: Sole Proprietorship, Limited Liability Company, VAT Registration Number

The Chief Operating Officer (COO) runs day-to-day operations: production or service delivery, procurement, warehouses, branches and quality. The CEO sets direction and answers to the board for the whole company; the COO executes the plan, runs operations and reports to the CEO.

Related: CEO, CFO

Cost accounting works out what each product, service or dish costs: direct materials, direct labour and a share of overheads. The result sets the minimum selling price and exposes loss-making products; in a restaurant it shows up as dish cost and food cost percentage.

Related: Managerial Accounting, Cost of Goods Sold, Cost Center

A cost center is a department, branch or project that expenses are tagged to so its cost can be tracked, without being held responsible for revenue: finance, the warehouse or the Jeddah branch, say. It is recorded on the entry next to the account, so you can report salaries by branch without opening a salaries account per branch.

Related: Chart of Accounts, Cost Accounting, ERP

Cost of goods sold (COGS) is the cost of the items actually sold in the period, not everything purchased. Under a periodic system: opening inventory + purchases − closing inventory. Under a perpetual system it is recorded with each sales invoice at the item's cost. Revenue minus COGS gives gross profit.

Example: Opening stock 40,000 + purchases 160,000 − closing stock 50,000 = COGS of SAR 150,000.

Related: Gross Profit, Inventory, FIFO

A credit (Cr) is an entry on the right side of an account. Credits increase liability, equity and revenue accounts and decrease assets and expenses. A sale is credited to Sales, and the balance you still owe a supplier is a credit balance because it is a liability. The accounting credit has nothing to do with a credit card.

Example: You invoice a service of SAR 1,000 on credit terms: debit Accounts Receivable 1,000, credit Revenue 1,000.

Related: Debit, Double-Entry Bookkeeping, Accounts Payable, Revenue

A credit note is issued by the seller to reduce the amount of an earlier invoice: a return, a later discount or a pricing error. It refers to the original invoice number and the reason, and it reduces revenue and output VAT. The original invoice is never edited; the credit note corrects it.

Example: A return worth SAR 2,000 before VAT: a credit note of SAR 2,300 including VAT of 300.

Related: Debit Note, Tax Invoice, Sales Return

Current assets are expected to be turned into cash or used up within twelve months or the operating cycle: cash and equivalents, receivables, inventory and prepayments. Comparing them with current liabilities gives the current ratio and working capital.

Related: Working Capital, Current Ratio, Non-Current Assets

Current liabilities are due within twelve months: trade payables, accrued expenses, VAT payable, zakat payable and the current portion of loans. Current assets are measured against them to judge whether a business can meet its short-term obligations.

Related: Current Ratio, Working Capital, Accounts Payable

The current ratio is current assets divided by current liabilities. It shows whether what falls due within a year can be paid from what turns into cash within a year. Below 1 is a warning sign, but healthy levels vary by sector: a cash-based restaurant can run lower than a distributor selling on credit.

Example: Current assets of 420,000 over current liabilities of 300,000: a current ratio of 1.4.

Related: Working Capital, ROA

Discounted cash flow (DCF) values a company or project today by discounting its forecast free cash flows at the weighted average cost of capital, plus a terminal value for the years beyond the forecast. The answer is very sensitive to the discount rate and the assumed growth rate.

Related: NPV, WACC, Free Cash Flow

A debit (Dr) is an entry on the left side of an account. Debits increase asset and expense accounts and decrease liability, equity and revenue accounts. Buying stock for cash debits Inventory. An unpaid customer balance is a debit balance because it is an asset of the business.

Example: You receive SAR 2,000 from a customer: debit Cash 2,000, credit Accounts Receivable 2,000.

Related: Credit, Double-Entry Bookkeeping, Journal Entry, Accounts Receivable

A debit note is issued by the seller to increase the amount of an earlier invoice: an undercharged price, a charge left off, or extra quantity tied to that invoice. It refers to the original invoice and the reason, and increases revenue and output VAT.

Related: Credit Note, Tax Invoice

A delivery note travels with the goods from seller to customer, listing items and quantities, often without prices, and is signed by the person receiving them. It proves delivery; the invoice is what claims payment.

Related: Goods Received Note, Sales Order

Depreciation spreads the cost of a tangible fixed asset over its useful life, so each year carries part of it. The straight-line method is the most common: (cost − residual value) ÷ useful life. It is a non-cash expense, so it is added back to profit in EBITDA and in the indirect cash flow statement.

Example: A delivery van costing SAR 90,000 with a residual value of 10,000 and a 5-year life: annual depreciation of SAR 16,000.

Related: Amortization, Fixed Assets, EBITDA, Book Value

Dividends are the share of profits a company decides to pay its shareholders or partners. They are deducted from retained earnings, not booked as an expense, so they do not affect net profit. In a joint stock company the general assembly, or the board under its authority, approves them.

Related: Retained Earnings, EPS

Double-entry bookkeeping is the core rule of accounting: every transaction affects at least two accounts, one debited and one credited, for equal amounts. That is why total debits equal total credits in the trial balance, and why the accounting equation always holds: Assets = Liabilities + Equity.

Example: Buying a computer for SAR 5,000 in cash: debit Equipment 5,000, credit Cash 5,000.

Related: Debit, Credit, Journal Entry, Trial Balance

Days sales outstanding (DSO) is the average number of days it takes to collect credit sales: receivables ÷ credit sales × days in the period. A rising DSO means customers are funding themselves with your cash.

Example: Receivables of SAR 150,000 on annual credit sales of 912,500: about 60 days.

Related: Accounts Receivable, Working Capital

An e-invoice is a tax invoice generated and stored in a structured electronic format through an electronic solution, in ZATCA's definition; a scanned or copied paper invoice is not one. Phase 1 (generation) took effect on 4 December 2021, and Phase 2 (integration) has rolled out in waves since 1 January 2023.

Related: Clearance, Reporting, Tax Invoice, ZATCA

EBIT (earnings before interest and taxes) is profit from operations before finance costs and zakat or income tax, close to operating profit. It measures how profitable the business is regardless of how it is financed. In Saudi accounts "taxes" here is read to include zakat.

Example: Net profit 80,000 + interest 15,000 + zakat 5,000 = EBIT of SAR 100,000.

Related: EBITDA, Net Profit, Income Statement

EBITDA stands for earnings before interest, taxes, depreciation and amortization. It is EBIT with depreciation and amortization added back, giving a rough measure of cash profit from operations. It is not defined by IFRS, so companies calculate it differently, and it is not a substitute for cash flow because it ignores capital spending and working capital.

Example: EBIT of SAR 100,000 plus depreciation of 30,000 and amortization of 10,000 gives EBITDA of SAR 140,000.

Related: EBIT, EBITDA Margin, Depreciation, Amortization

EBITDA margin is EBITDA divided by revenue. It compares operating profitability between companies with different financing and asset ages, so it is common in valuations and sector comparisons. A high margin with weak cash flow is a reason to look at receivables and inventory.

Example: EBITDA of SAR 140,000 on revenue of 1,000,000 is a 14% margin.

Related: EBITDA, Profit Margin

The end-of-service benefit (EOSB) is paid to an employee when employment ends under the Labour Law, based on final wage, length of service and reason for leaving. In the books the employer builds a provision every year rather than waiting for the payment date, and larger companies measure it actuarially under the employee benefits standard (IAS 19).

Related: Provision, Gross Salary, Payroll

Earnings per share (EPS) is net profit attributable to ordinary shareholders divided by the weighted average number of shares outstanding. Listed companies disclose it on the income statement, and the price-to-earnings ratio is share price ÷ EPS.

Example: Net profit of SAR 12,000,000 over 10,000,000 shares: EPS of SAR 1.20.

Related: P/E Ratio, Net Profit, Market Cap

Equity is what is left for the owners after liabilities are deducted from assets: paid-up capital, reserves and retained earnings or accumulated losses. Profits and capital injections increase it; losses, dividends and drawings reduce it.

Related: Capital, Retained Earnings, Statement of Changes in Equity

Enterprise resource planning (ERP) is one system on one database covering sales, purchasing, inventory, finance and human resources. Each transaction is entered once and shows up everywhere: a sales invoice reduces stock, posts the journal entry and updates the customer balance.

Related: POS, Chart of Accounts, Audit Trail

An exempt supply carries no VAT at all, and the seller cannot recover the input VAT related to it. Examples include certain financial services and residential rent. The difference from zero-rating lies in the right to recover input tax.

Related: Zero-Rated Supply, Input VAT

An expected credit loss (ECL) allowance estimates how much of receivables may not be collected, recognised under IFRS 9 before a customer actually defaults. It is often built from the aging report, applying a loss rate to each age band based on past collection history. It replaces the old "allowance for doubtful debts".

Related: Aging Report, Accounts Receivable, Bad Debt

First in, first out (FIFO) is an inventory costing method that assumes the oldest units are sold first, so cost of sales carries older purchase prices and closing stock carries the latest ones. IFRS allows it; LIFO is not permitted.

Example: Buying 100 units at 10 then 100 at 12 and selling 150: cost of sales is 100×10 + 50×12 = SAR 1,600.

Related: Weighted Average Cost, LIFO, Cost of Goods Sold

Financial accounting produces financial statements for outside users: owners, banks and government bodies. It follows IFRS, its statements are audited by an external auditor, and it reports on the business as a whole for a completed period.

Related: Managerial Accounting, Financial Statements, IFRS

Financial statements are the formal report on a business's performance and position at period end: the statement of financial position, the statement of profit or loss and other comprehensive income, the statement of changes in equity, the statement of cash flows, and the notes. In Saudi Arabia they follow IFRS as endorsed by SOCPA and are audited when the law requires.

Related: Statement of Financial Position, Income Statement, Statement of Cash Flows, Statement of Changes in Equity

A fiscal year (financial year) is the twelve-month period a business closes its books on and reports for, including its financial statements and zakat or tax return. Most Saudi businesses use the calendar year, January to December; others choose a different year end set in their articles of association. Changing it requires notifying the relevant authorities.

Related: Accounting Period, Closing Entries, Zakat

Fixed assets, or property, plant and equipment (PP&E), are tangible assets used in the business for more than a year: buildings, vehicles, computers, furniture and POS terminals. They are recorded at cost including delivery and installation and then depreciated over their useful life, except land.

Related: Depreciation, CAPEX, Non-Current Assets

Forensic accounting is financial investigation into fraud, embezzlement and disputes: tracing funds, rebuilding accounts from documents, quantifying losses and writing a report fit for a court or arbitration panel. Unlike a routine audit, it starts from a specific suspicion and looks for evidence.

Related: Audit, Internal Audit

Free cash flow (FCF) is cash from operations minus the capital expenditure needed to maintain and grow the business. It is what the business can use to repay debt or pay its owners, and discounted cash flow valuations are built on it.

Example: Operating cash flow of SAR 250,000 less capex of 90,000 leaves free cash flow of SAR 160,000.

Related: Statement of Cash Flows, CAPEX, DCF

A general accountant looks after the whole general ledger rather than one sub-ledger: reviewing journal entries, preparing bank reconciliations and month-end adjusting entries, running the trial balance and drafting the financial statements for the finance manager or the external auditor.

Related: Accountant, General Ledger, Trial Balance, Adjusting Entries

The general journal is the book of original entry, where entries are written in date order before being posted to the ledger accounts. In accounting software most journal lines come from invoices and vouchers, and manual journals are kept for adjustments and one-off transactions.

Related: Journal Entry, General Ledger, Bookkeeping

The general ledger (GL) holds every account of the business, each with its own page of posted debits, credits and running balance. It tells you the balance of cash, bank or a supplier on any date, and the trial balance is drawn from it. Customer, supplier and inventory sub-ledgers roll up into it.

Related: General Journal, Trial Balance, Chart of Accounts

Going concern is the assumption that a business will keep operating for the foreseeable future and has no plan to liquidate. It is why assets are carried at cost rather than forced-sale value. Material doubt about it, such as heavy accumulated losses and inability to pay debts, must be disclosed, and the auditor may highlight it.

Related: Accounting Principles, Liquidation, Auditor

A goods received note (GRN) is raised by the storekeeper when goods arrive, recording items, quantities actually received, their condition and the purchase order number. It is matched with the purchase order and the supplier invoice before payment is approved, so you never pay for goods that did not arrive.

Related: Purchase Order, Three-Way Match, Delivery Note

Goodwill is the amount by which the price paid to acquire a business exceeds the fair value of its identifiable net assets. It stands for what cannot be separated out: customers, location, team and reputation. Under IFRS it is not amortised but tested for impairment at least annually.

Example: Buying a business for SAR 1,000,000 with net assets at fair value of 750,000 creates goodwill of SAR 250,000.

Related: Acquisition, Impairment, Intangible Assets

GOSI, the General Organization for Social Insurance, collects monthly contributions for employees: a share paid by the employee and deducted from salary, and a share borne by the employer as an expense. Rates differ for Saudi and non-Saudi staff and by branch of cover, so take them from GOSI's current guidance rather than a fixed figure.

Related: Payroll, Net Salary, End-of-Service Benefit

Gross profit is revenue minus cost of goods sold, before any operating expense. Gross margin is gross profit divided by revenue. A falling margin with unchanged prices points to higher purchase costs, stock losses or unplanned discounting.

Example: Revenue of 300,000 and COGS of 210,000 give gross profit of SAR 90,000, a 30% gross margin.

Related: Cost of Goods Sold, Net Profit, Profit Margin

Gross salary is everything an employee earns before deductions: basic pay, housing allowance, transport allowance, other allowances and the month's overtime. Social insurance contributions are calculated on the contributory wage as defined by GOSI, which is not always the full gross.

Related: Net Salary, Payroll, GOSI

A holding company exists mainly to own controlling stakes in other companies, which become its subsidiaries. It prepares consolidated financial statements combining its own and its subsidiaries' assets, liabilities and results, after eliminating transactions and balances between group companies.

Related: Subsidiary, Acquisition

The International Bank Account Number (IBAN) is the standard format for bank account numbers in transfers. A Saudi IBAN has 24 characters starting with SA. It is printed on invoices and supply contracts to avoid transfer errors, and its owner is confirmed through the bank, not by its format.

Related: Bank Reconciliation, SARIE

International Financial Reporting Standards (IFRS) set how transactions are recognised, measured and disclosed in financial statements. Saudi entities apply them as endorsed by SOCPA, with a separate standard for small and medium-sized entities. Examples include IFRS 15 on revenue and IFRS 16 on leases.

Related: SOCPA, Accounting Principles, Right-of-Use Asset

Impairment is writing down an asset's carrying amount when it exceeds what can be recovered from selling or using it. The difference is a loss in the income statement. Triggers include physical damage, the activity it serves being stopped, or a sharp market decline.

Related: Book Value, Goodwill, Expected Credit Loss

The income statement, also called the profit and loss (P&L), reports a period's result: revenue, cost of sales and gross profit, operating expenses and operating profit, finance costs, and profit before zakat and tax down to net profit. It covers a period, while the balance sheet describes a single date.

Example: Revenue 900,000, cost of sales 540,000 and operating expenses 210,000: gross profit 360,000 and operating profit SAR 150,000.

Related: Revenue, Gross Profit, Net Profit, EBIT

Incoterms are rules published by the International Chamber of Commerce that set, in a sales contract, who pays for transport, insurance and customs clearance and when risk passes from seller to buyer: EXW, FOB, CIF, DDP and others. They affect when revenue is recognised and what imported goods cost.

Related: Revenue, Cost of Goods Sold

Input VAT is the VAT a registered business paid on taxable purchases and expenses. It can be deducted from output VAT in the return when the purchase relates to its taxable activity and it holds a valid tax invoice in its name, with restrictions on certain items under the regulations.

Related: Output VAT, VAT, Tax Invoice

Intangible assets have no physical form but can be identified and bring benefits: software licences, purchased trademarks and patents. Those with a finite life are amortised; those with an indefinite life are tested for impairment every year. A brand a business builds internally is not recognised as an asset.

Related: Amortization, Goodwill, Impairment

Internal audit is an in-house function that tests controls and procedures: who approves payments, whether cash is reconciled daily, whether stock counts follow the procedure. It reports to senior management or the audit committee, and its aim is to stop errors and fraud before they reach the financial statements.

Related: Audit, Audit Trail, Auditor

Inventory, or stock, is goods held for sale, plus raw materials and work in progress in manufacturing, and ingredients in a restaurant. It is a current asset measured at the lower of cost and net realisable value, and its cost moves to cost of sales when items are sold.

Related: Cost of Goods Sold, Perpetual Inventory System, Stock Count, FIFO

Inventory shrinkage is the gap when physical stock is lower than book stock: theft, damage, expiry, or errors in receiving and issuing. It is tracked as a percentage of sales or of inventory cost and is written off to expense after investigation.

Related: Stock Count, Inventory

Inventory turnover is cost of sales divided by average inventory: how many times stock was sold and replaced in the year. 365 divided by it gives days of inventory. Slow turnover means cash tied up on the shelves and a risk of obsolescence.

Example: Cost of sales of SAR 600,000 and average stock of 100,000: turnover of 6, about 61 days.

Related: Inventory, Cost of Goods Sold, Working Capital

The internal rate of return (IRR) is the discount rate at which a project's NPV is zero. If it exceeds the cost of capital, the project clears the hurdle. It is found by iteration or Excel's IRR function, and can give more than one answer when cash flows change sign more than once.

Example: Investing SAR 100,000 for 60,000 at the end of each of 2 years: an IRR of about 13.07%.

Related: NPV, WACC, CAGR

A joint stock company (JSC) has capital divided into equal, transferable shares, and each shareholder's liability is limited to their shares. It is run by a board of directors under a shareholders' general assembly, and may be listed on the stock exchange or unlisted. The Companies Law and its bylaws govern it.

Related: Closed Joint Stock Company, Board of Directors, Market Cap

A journal entry records one transaction in the journal: date, accounts debited and credited, amounts, a short narration and the source document number. Total debits in an entry always equal total credits. A simple entry has two lines; a compound entry has more, such as a cash sale with VAT.

Example: A cash sale of SAR 1,150 including VAT: debit Cash 1,150, credit Sales 1,000, credit VAT Payable 150.

Related: General Journal, Double-Entry Bookkeeping, Adjusting Entries, Output VAT

A lease liability is the present value of the remaining lease payments, discounted at the rate implicit in the lease or the lessee's borrowing rate. It is recognised with the right-of-use asset at the start of the lease, reduced by each payment and increased by interest, and split into current and non-current portions.

Related: Right-of-Use Asset, Liabilities

Liabilities are what a business owes others as a result of past events and expects to settle by giving up resources: suppliers, loans, VAT payable, salaries payable and the end-of-service provision. They are split into current liabilities due within a year and non-current ones.

Related: Current Liabilities, Accounts Payable, Provision, Assets

Last in, first out (LIFO) assumes the newest units are sold first. It is not permitted under IFRS as applied in Saudi Arabia, so you meet it in US textbooks rather than in locally prepared statements.

Related: FIFO, Weighted Average Cost

A limited liability company (LLC) has its own legal personality, and each partner's liability is limited to their share of capital, so company debts do not reach their personal assets. It is the most common form for Saudi SMEs and can be set up by a single owner.

Related: Sole Proprietorship, Joint Stock Company, Capital

Liquidation winds up a company: its assets are sold, receivables collected and debts paid, any surplus goes to the partners or shareholders, and the registration is cancelled. It can be voluntary by decision of the owners, or under the Bankruptcy Law when the company cannot pay its debts. A liquidator runs the process, and zakat and tax returns are due up to deregistration.

Related: Going Concern, Commercial Registration

A loan is money a business obtains from a bank or financier and repays with finance cost in instalments. It is a liability split into the current portion due within a year and the non-current portion, and the finance cost is an expense. Most Saudi business finance uses Sharia-compliant structures such as murabaha and ijara.

Related: Liabilities, Murabaha, WACC

Mada is Saudi Arabia's national debit card network, run by Saudi Payments under the Saudi Central Bank. Its cards are accepted on POS terminals and online stores. The fees a merchant pays depend on its agreement with the acquiring bank or payment provider, so take them from the contract rather than a general figure.

Related: POS, SARIE, Payment Gateway

Managerial accounting prepares information for people inside the business: product cost, branch or customer profitability, budgets versus actuals and break-even analysis. No mandatory standards govern it, so its reports take whatever form management needs, and it looks forward as much as back.

Related: Financial Accounting, Cost Accounting, Budget, Break-Even Point

Market capitalization (market cap) is a listed company's share price multiplied by its shares outstanding. It is the market's valuation of the equity at that moment and changes with every trade. It differs from enterprise value, which adds debt and subtracts cash, and from book value.

Example: 500,000,000 shares at SAR 30 give a market cap of SAR 15,000,000,000.

Related: Book Value, EPS, P/E Ratio

Materiality decides what must be disclosed or corrected: information is material if leaving it out or getting it wrong could change the decisions of people reading the statements. A SAR 100 error is immaterial for a company with SAR 100 million revenue and may matter for a small shop. Auditors set a materiality threshold before fieldwork.

Related: Accounting Principles, Audit

A merger combines two or more companies into one entity, either by one dissolving into the other or by both dissolving to form a new company. In an acquisition the target can survive as a subsidiary; in a merger it does not. The Companies Law sets the procedure and protects creditors.

Related: Acquisition, Goodwill

Multi-currency accounting records transactions in their original currency, such as a supplier invoice in US dollars, and translates them to riyals at the exchange rate on the transaction date. On settlement or at period end the exchange difference is recognised as a gain or loss in the income statement.

Example: A USD 10,000 invoice booked at 3.75 is SAR 37,500; paid at 3.76, it gives an exchange loss of SAR 100.

Related: ERP, Accounts Payable

Murabaha is a financing structure in which the bank buys a commodity or asset and sells it to the business at cost plus a disclosed profit, paid in instalments. The business records a liability for the principal and spreads the profit element over the financing period as a finance cost.

Related: Loan

Net profit (net income) is what is left of revenue after all expenses: cost of sales, operating expenses, depreciation, finance costs and zakat or income tax. It is the bottom line of the income statement and the basis for EPS and return on equity.

Related: Gross Profit, EPS, ROE, Profit Margin

Net salary is what actually reaches the employee's account: gross pay less their social insurance share, advances, unpaid absence and lawful penalties. It is the figure sent in the wage protection file.

Related: Gross Salary, WPS, Payroll

Non-current assets are used for more than a year and are not held for sale: property, plant and equipment, intangible assets, right-of-use assets and long-term investments. Most have their cost spread over their useful life through depreciation or amortisation.

Related: Fixed Assets, Intangible Assets, Depreciation

Net present value (NPV) is the sum of a project's expected cash flows discounted back to today at a rate reflecting financing cost and risk, minus the initial investment. A positive NPV means the project covers its cost of capital and more.

Example: Investing SAR 100,000 for 60,000 at the end of each of 2 years, discounted at 10%: NPV of SAR 4,132.23.

Related: IRR, DCF, WACC

Operating expenses (OPEX) are the costs of running the business day to day, charged to the income statement in the period: salaries, rent, utilities, marketing and software subscriptions. OPEX is used up in the period; CAPEX buys an asset that serves for years.

Example: A SAR 500 monthly software subscription is OPEX; buying a SAR 30,000 server is CAPEX that is depreciated.

Related: CAPEX, Income Statement, EBITDA

Output VAT is the tax a registered business charges on its sales and adds to its invoices. It is not revenue but a liability to ZATCA, held in a VAT payable account until it is settled through the return.

Related: Input VAT, VAT, VAT Return

Overtime is time worked beyond normal working hours, paid at a premium over the ordinary hourly rate under the Labour Law. The hourly rate is worked out from basic pay, and overtime is shown as a separate line on the payroll.

Related: Gross Salary, Payroll

The price-to-earnings (P/E) ratio is the share price divided by annual EPS. It is how many years of current earnings the price represents. A high P/E reflects growth expectations or a rich valuation, and it has no meaning when the company is loss-making.

Example: A share priced at SAR 30 with EPS of 1.20 trades at a P/E of 25.

Related: EPS, Market Cap

A payment gateway passes card payment details from an online store to the bank and returns the result. Amounts held by the gateway are an asset until settled to the business account, and gateway fees are booked as an expense, so the net settlement alone should not be recorded as revenue.

Example: SAR 10,000 of sales through the gateway with fees of 250: revenue 10,000, fees expense 250, settlement 9,750.

Related: Mada, Bank Reconciliation

A payment voucher authorises money paid out by the business: payee, amount in figures and words, purpose, the account debited, and signatures for preparation, approval and receipt, with the supporting document such as the invoice attached. Its entry debits the supplier or expense and credits cash or bank.

Related: Receipt Voucher, Accounts Payable, Petty Cash

Payroll is the monthly schedule of employee pay: basic salary, allowances, overtime, deductions, social insurance contributions and the net amount due to each person. Once approved it is paid through the bank, and the entry debits salary expense and credits bank and GOSI payable.

Related: Gross Salary, Net Salary, GOSI, WPS

A periodic inventory system does not track quantities with each sale; stock is counted at period end and cost of sales is worked out as opening stock + purchases − closing stock. It is simpler, but losses and theft disappear into cost of sales.

Related: Perpetual Inventory System, Cost of Goods Sold, Stock Count

A perpetual inventory system updates each item's quantity and cost with every movement: purchase, sale, return or transfer between warehouses. Stock on hand and cost of sales are known at any moment, and physical counts are for finding discrepancies rather than calculating the balance.

Related: Periodic Inventory System, Stock Count, POS

Petty cash is a small float of cash held by an employee for minor daily expenses: hospitality, transport, supplies. Under the imprest system the custodian submits receipts, the fund is topped up by their total to its original amount, and each receipt is booked to its expense account. Any gap between receipts and cash left is investigated straight away.

Example: A SAR 2,000 float with SAR 1,650 of receipts: the custodian is reimbursed 1,650 and the float is back to 2,000.

Related: Cash on Hand, Payment Voucher

Point of sale (POS) is where and how a sale to a customer is completed: the cashier screen, barcode scanner, card terminal and receipt printer. It records the sale, issues the simplified invoice, reduces stock, and is where the cashier closes the shift.

Related: Shift Close, Barcode, Mada, ERP

A post-dated cheque (PDC) carries a date later than the day it is handed over, used for instalment sales and rent. It is not recorded as collected when received; it is tracked in a cheque register until its date and deposit.

Related: Cheque, Accounts Receivable

Prepaid expenses are amounts paid for future periods: a year's rent in advance, insurance, an annual subscription. They are recorded as a current asset when paid, and each month's share is then moved to expense.

Example: Annual insurance of SAR 6,000 paid in January is expensed at SAR 500 a month.

Related: Accrued Expenses, Adjusting Entries, Current Assets

Profit margin is profit divided by revenue, and is stated by type: gross margin, operating margin or net margin. It is not the same as markup on cost: an item costing 80 and selling for 100 has a 20% margin and a 25% markup.

Example: Net profit of SAR 45,000 on revenue of 600,000 is a 7.5% net margin.

Related: Gross Profit, Net Profit, EBITDA Margin

A promissory note is a written promise by a debtor to pay a set amount to a named person or to their order on a set date. It is governed by the Commercial Papers Law, has mandatory particulars, is used for instalment sales and as security for debts, and can be issued electronically through the Nafith platform.

Related: Cheque, Accounts Receivable

A provision is a liability of uncertain timing or amount, recognised when an obligation exists and can be estimated reliably: end-of-service benefits, warranty costs, an expected legal loss. It is expensed in the period the obligation arises, not when it is paid.

Related: End-of-Service Benefit, Expected Credit Loss, Liabilities

A purchase order (PO) is issued by a business to a supplier, approved by the authorised person, ordering items at agreed quantities, prices and delivery dates. Once accepted it binds both sides, and it is later matched with the goods received note and the supplier invoice.

Related: Goods Received Note, Three-Way Match, Accounts Payable

A quotation is sent to a customer before a sale, setting out items, prices, VAT, payment and delivery terms, and how long the offer is valid. It creates no revenue and no journal entry; once accepted it becomes a sales order and then an invoice.

Related: Sales Order, Tax Invoice

A receipt voucher records money received by the business in cash, by cheque or by transfer: who paid, the amount in figures and words, the reason, the date and the receiver's signature. Its entry debits cash or bank and credits the customer or revenue.

Related: Payment Voucher, Accounts Receivable

The reorder point is the stock level at which a new order must be placed so the item does not run out before delivery: average daily usage × lead time in days + safety stock.

Example: Usage of 20 units a day, a 7-day lead time and safety stock of 60: reorder at 200 units.

Related: Inventory, Purchase Order

Reporting is the Phase 2 process in which a simplified tax invoice (business-to-consumer) is sent to ZATCA after it is issued. The business may report before or after sharing the invoice with the buyer, as long as it is reported within 24 hours of issue, according to ZATCA's FAQ.

Related: Clearance, E-Invoice

Retained earnings are the profits a business has made since it started and not yet distributed to its owners. Each year's net profit is added through closing entries, and dividends and losses reduce the balance. They sit in equity.

Related: Equity, Dividends, Closing Entries

Revenue is the value of goods and services a business sold in its ordinary activities during the period, net of discounts and returns and excluding VAT, which is collected on ZATCA's behalf. Under IFRS 15 it is recognised when control of the goods passes or the service is performed, not when the cash arrives.

Example: A sale of SAR 11,500 including VAT is revenue of 10,000 and a VAT liability of 1,500.

Related: Accrued Revenue, Unearned Revenue, Income Statement, Output VAT

A right-of-use asset represents a lessee's right to use a leased asset, such as a shop, warehouse or vehicle, for the lease term under IFRS 16. It is matched by a lease liability at the present value of the payments. The asset is depreciated and interest is charged on the liability, instead of booking rent straight to expense, with exemptions for short-term and low-value leases.

Related: Lease Liability, IFRS, Depreciation

Return on assets (ROA) is net profit divided by average total assets. It measures how efficiently all assets produce profit, whatever their financing. Asset-heavy businesses such as factories naturally show a lower ROA than service firms.

Example: Net profit of SAR 90,000 on average assets of 1,500,000: ROA of 6%.

Related: ROE, ROIC

Return on equity (ROE) is net profit divided by average equity for the period, times 100. It shows what the owners earn on each riyal they have invested or left in the business. Heavy borrowing can push it up without better performance, so read it alongside leverage.

Example: Net profit of SAR 90,000 on average equity of 600,000: ROE of 15%.

Related: ROA, ROIC, Net Profit, Equity

Return on invested capital (ROIC) is after-tax operating profit divided by the capital invested in the business (equity plus interest-bearing debt, less surplus cash). If it beats the weighted average cost of capital (WACC), the business creates value; if not, it destroys it.

Related: WACC, ROE, EBIT

A sales order is the internal confirmation of a customer's order once the quote is accepted: items, quantities, prices and delivery date. It reserves stock in the warehouse and drives the delivery note and invoice, but creates no revenue by itself.

Related: Quotation, Delivery Note, Tax Invoice

A sales return is goods a customer sends back after purchase. It is recorded with a credit note that reduces revenue, output VAT and the customer balance or triggers a refund, and puts the item back into stock if it can be resold. It is deducted from sales on the income statement.

Related: Credit Note, Revenue

SARIE is Saudi Arabia's interbank payment system run by the Saudi Central Bank (SAMA), carrying local riyal transfers between banks, including instant transfers. It appears on bank statements next to incoming and outgoing transfers.

Related: IBAN, Mada

A shift close counts the cash in the till at the end of a shift and compares it with recorded cash sales, and agrees card sales with the terminal report. The report produced is the Z report, which resets the shift totals; an X report shows sales so far without resetting.

Example: Recorded cash sales of SAR 4,850 and an opening float of 500, with 5,320 counted: a SAR 30 shortage.

Related: POS, Cash on Hand

A stock keeping unit (SKU) is an internal code unique to each sellable item and variant, so a shirt in two sizes and two colours is four SKUs. The business sets its own SKUs to track stock and sales; they differ from the international barcode numbers issued by GS1.

Related: Barcode, Inventory

SOCPA, the Saudi Organization for Chartered and Professional Accountants, is the professional body that endorses the accounting and auditing standards applied in the Kingdom, awards its professional fellowship, licenses audit practitioners and reviews the quality of audit firms.

Related: IFRS, Auditor

A sole proprietorship is owned by one person who is personally liable for its debts, since it has no legal personality separate from the owner. It is registered in the commercial register under the owner's name, and its accounts should still be kept apart from personal spending so its real profit and zakat base are known.

Related: Limited Liability Company, Commercial Registration

The statement of cash flows explains the change in cash over the period in three sections: operating activities (sales, purchases, salaries), investing activities (buying and selling assets) and financing activities (loans, capital, dividends). It is prepared with the direct method or the indirect method, which starts from net profit.

Related: Cash Flow, Free Cash Flow, Financial Statements

The statement of changes in equity shows how each equity line moved during the period: opening balance, capital injections, net profit, dividends and transfers to reserves, ending with closing balances that match the statement of financial position.

Related: Equity, Retained Earnings, Financial Statements

The statement of financial position, still widely called the balance sheet, shows what a business owns and owes on a specific date: assets on one side, liabilities and equity on the other, and the two sides always agree. Assets and liabilities are split into current and non-current according to when they will be realised or settled.

Related: Accounting Equation, Assets, Liabilities, Equity

A stock count compares the items physically on the shelves with the book balance. Differences are investigated and then adjusted with an entry that raises or lowers inventory. A full count is done at year end, with cycle counts during the year for high-value or fast-moving items.

Example: A book balance of 120 cartons against 116 counted: a shortage of 4 cartons at SAR 85 each, or SAR 340.

Related: Inventory, Perpetual Inventory System, Inventory Shrinkage

A subsidiary is a company controlled by another company, the parent, typically through a majority of voting rights. It keeps its own legal personality, registration and books, but its results are consolidated into the parent's financial statements. A branch, by contrast, has no separate legal personality.

Related: Holding Company, Acquisition

A tax invoice is issued by a VAT-registered business when it makes a supply, and it shows the VAT charged. There are two types: the standard tax invoice for sales to businesses, which includes the buyer's details and VAT number, and the simplified tax invoice for sales to individual consumers. The required fields for each are set in ZATCA's e-invoicing regulations.

Related: E-Invoice, Credit Note, VAT Registration Number

A three-way match is a control applied before paying a supplier: the purchase order (what you ordered), the goods received note (what arrived) and the supplier invoice (what you are billed) must agree on items, quantities and prices. Any difference holds the payment until resolved.

Related: Purchase Order, Goods Received Note, Accounts Payable

A trade discount is a reduction from list price given at the time of sale, for volume or customer type. It is deducted on the invoice itself before VAT is calculated and is not booked to a separate account. It differs from an early payment discount, which is offered after the sale for paying early.

Example: List price SAR 1,000 with a 10% trade discount: VAT is charged on 900, so 135, for a total of SAR 1,035.

Related: Tax Invoice, Revenue

A trial balance lists every ledger account balance on a given date, debits in one column and credits in the other. Equal totals prove the entries balance, not that they are right: posting to the wrong account or missing an entry will not show. It is run before and after adjusting entries, and the financial statements are prepared from it.

Example: Cash 40,000 Dr, inventory 25,000 Dr, supplier 15,000 Cr and capital 50,000 Cr: both columns total 65,000.

Related: General Ledger, Adjusting Entries, Financial Statements

Unearned (deferred) revenue is cash received before goods are delivered or services performed, such as an annual subscription paid upfront or a customer deposit. It is a liability because the business still owes the service, and it becomes revenue as the work is done. VAT can fall due when an advance payment is received.

Example: An annual subscription of SAR 2,400 received upfront is recognised at SAR 200 of revenue a month.

Related: Accrued Revenue, Revenue, Liabilities

Value added tax (VAT) is an indirect tax on supplies of goods and services at every stage of the chain, borne by the final consumer. A registered business charges it to customers (output tax), deducts the VAT it paid on purchases (input tax) and pays the difference to ZATCA in its return. The standard rate in Saudi Arabia is 15%.

Example: Output VAT of SAR 1,500 on SAR 10,000 of sales, less input VAT of 900 on purchases: SAR 600 is payable to ZATCA.

Related: Output VAT, Input VAT, VAT Return, ZATCA

The VAT registration number, often called the TRN, is issued by ZATCA when a business registers for VAT and must appear on every tax invoice it issues; a standard tax invoice also carries the buyer's number. To confirm a supplier's number is genuine, use ZATCA's official lookup rather than relying on its format.

Related: VAT, Tax Invoice, Commercial Registration

A VAT return is filed with ZATCA for each tax period, showing sales and purchases by category, output and input VAT, and the net amount payable or refundable. The period is monthly or quarterly depending on the size of taxable supplies; check ZATCA's current deadlines.

Related: VAT, Output VAT, Input VAT

The weighted average cost of capital (WACC) is the average return a business pays its funders, the cost of equity and the after-tax cost of debt, weighted by their share of total financing. It is the discount rate in valuations and the minimum acceptable return on projects.

Example: 60% equity at 14% and 40% debt at 6% after tax: a WACC of 10.8%.

Related: ROIC, NPV, DCF

Weighted average cost values inventory by dividing the total cost of units available by their number, recalculated after each purchase under a perpetual system. It smooths out swings in purchase prices and is widely used in retail and distribution systems.

Example: Buying 100 units at 10 then 100 at 12 gives an average of SAR 11, so selling 150 units costs SAR 1,650.

Related: FIFO, Cost of Goods Sold

Withholding tax (WHT) is deducted by a Saudi resident from payments to a non-resident for services, royalties, dividends and similar items, and paid to ZATCA on the non-resident's behalf. The rate depends on the type of payment under the Income Tax Law's implementing regulations and may be reduced by a double tax treaty.

Related: ZATCA, Zakat

Working capital is current assets minus current liabilities. It measures the liquidity available to run the business: inventory and receivables tie cash up, and supplier credit funds it. Slower collections or overstocking raise the funding a business needs even when it is profitable.

Example: Current assets of SAR 420,000 and current liabilities of 300,000 give working capital of SAR 120,000.

Related: Current Ratio, Current Assets, Current Liabilities

The Wage Protection System (WPS) is how the Ministry of Human Resources monitors salary payments: the employer uploads a monthly payroll file, and it is matched against actual bank transfers, flagging late or short payments against contracts.

Related: Payroll, Net Salary

Year over year (YoY) is the percentage change in a figure against the same period a year earlier: Q3 against last year's Q3, or this Ramadan against last Ramadan. It removes the seasonal effects that distort month-on-month comparisons. Formula: (current − prior) ÷ prior × 100.

Example: Q3 sales of SAR 1,150,000 against 1,000,000 a year earlier: 15% YoY growth.

Related: CAGR, Budget

Zakat is levied on Saudi and GCC-owned businesses under ZATCA's zakat collection regulations. It is calculated on the zakat base, not on profit alone, at 2.5% for a Hijri year, with an adjusted rate when the financial year is Gregorian because it is longer. It is charged to the income statement.

Related: Zakat Base, ZATCA, Withholding Tax

The zakat base is the amount a business's zakat is calculated on. It starts from equity, long-term sources of funds and adjusted net profit, and deducts non-current assets and other items set by the zakat regulations. The detail changes with regulation updates, so have the calculation reviewed before filing.

Related: Zakat, Equity, Non-Current Assets

ZATCA, the Zakat, Tax and Customs Authority, collects zakat, taxes and customs duties in Saudi Arabia. It runs VAT registration, returns and audits, and the FATOORA e-invoicing programme.

Related: VAT, Zakat, E-Invoice

A zero-rated supply is taxable but at 0%: it appears on the invoice and in the return, and the seller can still recover input VAT. Exporting goods outside the GCC is the best-known example. The detailed conditions are in ZATCA's implementing regulations.

Related: Exempt Supply, VAT