What Is Cloud Accounting? Cloud Computing in Accounting Guide & Examples
The concept of accounting is age-old, traceable to the early days of man, and has evolved into what we know it today. Its evolution mirrored changing times, and in our days, cloud computing is the next step in this evolution. This begs the question, what is cloud accounting?
In this post, we’ll look at cloud accounting and computing, contrast it with traditional accounting, and see some notable examples and benefits of using cloud accounting.
Sit back, and relax, as we help you learn more about cloud accounting.
What is cloud accounting? Our definition
To understand the true cloud accounting meaning, we will have to split the term “cloud accounting” into two separate words and bring them back together.
Cloud, as it is being used here, does not refer to the clouds in the sky. Rather, it is a metaphor for the internet, an interconnection of networks invisible to the eye, somewhere up in the air.
Cloud computing is one of the hottest tech buzzwords on the internet. Back in 2011, the phrase was so popular it had occurred about 48 million times on the internet. It’s been about 12 years since then, and its usage has only grown exponentially.
In its simplest terms, cloud computing refers to rendering service via the Internet. Such services include data storage, servers, databases, networking, and software. More often than not, these services are rendered via a subscription model, which could be yearly or monthly.
The second word is accounting, and in its simplest form, accounting is the recording and monitoring of the financial transactions of a company or a business.
Combining both terms reveals that cloud accounting refers to accessing accounting services and carrying out accounting activities via the Internet.
Cloud accounting involves using cloud-based accounting software platforms to carry out basic and complex accounting activities. These software options are not hosted on your desktop but rather on a remote server in the cloud, and you access them via a browser on your devices. This comes with its own set of benefits and challenges.
One key challenge that could be raised is the safety of your data. This is one place where cloud accounting solutions excel. The security of data transmitted via the cloud is top-notch as providers of this service understand that users have vital information, such as their bank accounts, linked with their accounting software accounts.
Having said the above, are there key differences between cloud and traditional accounting?
Cloud accounting vs traditional accounting
Since we’ve been able to define cloud accounting, what is traditional accounting? Traditional accounting, in this sense, refers to accounting done off the internet, using software hosted on the premises of the business using it.
We will look at some of the key differences between traditional accounting and cloud accounting subsequently. These differences will form the bulk of the benefits of cloud accounting.
Cost
Regarding cost, traditional accounting is usually more expensive than cloud accounting, as the purchase cost goes beyond buying the software. You have to consider the setup cost, private servers, space, and other added costs.
You also have to consider that you will be paying for a lot of services, while many cloud accounting options allow users to pick what essential services they would be paying for in the form of plans, tiers, or custom-made orders.
Although you have to pay periodically for cloud accounting services, the total still does not equate to traditional accounting options when you factor in the cost of maintenance.
Also, if you are tired of a particular service, you’ll be able to easily switch from one platform to another at no extra cost for setup although the cost for data migration could be included with some platforms. This is not obtainable with traditional accounting options.
Scalability
Scaling your accounting solution is necessary for your business if you seek growth. Cloud accounting provides room for scalability with ease compared with traditional accounting. In cloud accounting, you can easily upgrade from one plan to the other within the service you are making use of. This could be a very tedious process with traditional accounting.
Data Security
Regarding data security, both cloud accounting and traditional accounting can be victims of various forms of data breaches. With cloud accounting, there is always the risk of cyber attacks, but most cloud accounting software providers have measures in place to protect user data and vital details.
Traditional accounting is susceptible to more hardware-related security breaches; the IT unit of your business will have to be responsible for protecting your data.
Collaboration
Collaboration is part of the core features cloud accounting platforms sell, and with a world that doubles between virtual and physical working spaces, cloud accounting solutions are a huge plus.
Collaboration really is not a strong feature of traditional accounting software options.
Accessibility
A core difference between traditional and cloud accounting is how accessible they are. Cloud accounting allows businesses to access their service anywhere in the world, anytime, and from any device.
On the other hand, traditional accounting software programs are on-premise software that restricts the frequency with which it can be accessed.
Audit Trails
Auditing a company’s finances is important for business accountability. Checking audit trials is easier with traditional accounting based on user logins. This can be easily tracked and monitored. Audit trails might be dicey with cloud accounting as multiple users can log in with the same account across different locations.
Internet connection
In a world connected by the internet, users and cloud accounting providers have to rely on the internet to carry out tasks. While this makes it easier for various processes, it could be negative in arrears with no stable internet connection.
This is not an issue for users of traditional accounting software, as most traditional accounting software options do not use the internet or use a local area network for their connections.
Integrations
Integration increases the capabilities of your accounting software and makes tasks easier for your accountants. This is easier for cloud accounting solutions as many can be connected with other online solutions. The integration capabilities of cloud accounting software platforms vary from product to product.
Traditional accounting software solutions weren't created to work with standard business tools. They are intended to function independently of other applications and are frequently only compatible with a limited number of solutions.
Cloud accounting examples
Since the cloud gained traction, many software providers have developed accounting solutions for mass adoption. Both small and large businesses can use these solutions. We present some of our best accounting software for small business enterprises and users willing to expand their business.
The benefits of cloud computing in accounting
There are a lot of benefits that come with using cloud computing for accounting. This ultimately sets cloud accounting apart from more traditional methods.
Here are 11 benefits of cloud computing in accounting.
Automation
Cloud accounting platforms enable businesses to automate various financial tasks, such as invoice generation, payment processing, and reconciliation. By automating these repetitive processes, account receivables are handled more efficiently, reducing human errors and saving valuable time for the finance department.
Improved Collaboration Options
Cloud accounting makes collaboration among team members, departments, and even external stakeholders seamless. Multiple users can access the accounting data simultaneously, promoting real-time updates and facilitating better communication. This ensures that all relevant parties stay informed and can work together efficiently, further streamlining account receivable processes.
Accessibility
Cloud accounting provides unparalleled accessibility to financial data. Authorized users can access the system from any location with an internet connection, breaking down geographical barriers.
This accessibility ensures that important financial information, including payment and billing details, is readily available to those who need it, promoting informed decision-making and a more agile financial management process.
You can easily access “the cloud remotely from anywhere as long as you have an internet connection and can access the log-in portal from any device.
Scalability
Cloud accounting software solutions offer a scalable framework that can adapt to a business's changing needs.
Whether your company is experiencing rapid growth or seasonal fluctuations, cloud providers can easily accommodate the increased demand for accounting services, ensuring that account receivables and financial data are always efficiently managed.
Most cloud-based software platforms provide multiple plans that allow you to upgrade your plans without hassle easily, and you get software updates at intervals that meet changing industry standards.
Improved Accounting Accuracy
Automation and advanced algorithms in cloud accounting significantly enhance accounting accuracy. By reducing manual data entry, which is prone to errors, cloud accounting systems ensure that financial data and payment details are more accurate, contributing to a more reliable financial reporting process.
Faster Implementation
Cloud platform implementations are typically faster than traditional on-premises solutions. With minimal hardware and software setup required, businesses can swiftly migrate their financial data to the cloud, reducing downtime and benefiting from the features that streamline billing and payment processes.
CRM solutions
One special advantage cloud-accounting solutions offer is that they are usually SAAS products with CRM capabilities.
Besides providing financial solutions and allowing team members to collaborate, good cloud accounting software also allows users to store and manage customer data as they affect finances.
Secure Data Storage
Cloud accounting software solutions employ robust security measures to safeguard financial data. Cloud providers often utilize firewalls and multi-factor authentication to protect against unauthorized access; they also encrypt your data, ensuring the confidentiality and integrity of sensitive financial information, including account receivable data.
You can also easily back up your data from a laptop, desktop, or mobile phone and be sure you can use that data across devices.
Multi-User Access
Cloud accounting platforms support multi-user access with role-based permissions.
This means authorized team members can access specific financial data and perform tasks relevant to their roles, enhancing collaboration while maintaining control and security over financial data and payment processes.
Each team member is given an individual password to access the cloud platform’s dashboard.
Real-Time Updates
One of the significant advantages of cloud accounting is the ability to receive real-time updates on financial transactions, payment statuses, and billing details.
This up-to-date information enables businesses to make informed decisions promptly and respond to changing market conditions more effectively.
Workflow Organization
Cloud accounting systems often have built-in tools to organize workflows and automate processes. These features streamline various accounting tasks, such as payment processing, billing, and account receivable management, optimizing the overall financial workflow and saving time for the finance department.
Our conclusion on accounting in the Cloud
It’s important to remember that with the many good tools available, there are also substandard ones. Keep in mind that each reputable platform gives users the essential tools for proper accounting tasks and then offers plans that expand on these basics.
With our best cloud accounting software post, you can easily choose which cloud accounting software best meets the need of your company.
‘The cloud’ as a whole has greatly improved how business is run and has provided the opportunity for small businesses to use cloud accounting software to tend to their cash flow and focus on improving the visibility of their business.
