Cloud accounting has been around for only some years, but its influence has transformed the way leaders do business.
For example, one study shows moving to a cloud-based model for accounting work allowed employees “to perform their duties better” and improved their overall capacity to collaborate. In another paper, researchers believe using technologies such as cloud computing in accounting can positively impact business decisions.
So, what is cloud-based accounting, and how is it helpful to businesses across sectors? And more importantly, should your business also shift to a cloud-based model for its finances?
What is Cloud Accounting?
In order to gain an understanding of this new technical concept, we first need to identify what cloud technology or cloud computing is.
Cloud computing technology connects users to data and resources on demand. Through cloud computing, you can access programs and IT services on your browser instead of installing them on your computer.
For example, back then, one had to download Microsoft Office to use its suite of tools — PowerPoint, Word, Excel, you name it. Now, with Microsoft 365, you can access the same things and more on a subscription basis using only your browser. It’s a similar, if not the same, idea with Google Drive.
With this definition of cloud computing, we can easily grasp what cloud accounting is, and it’s essentially accounting that works within the cloud computing model.
Rather than downloading spreadsheet applications or ERP software, you can access these types of accounting technology via the internet. Rather than purchasing the software itself, you’re buying the power to use a service provider’s accounting tool or platform. Popular examples of this technology include QuickBooks, Xero, and FreshBooks.
It’s generally a more convenient and quicker way to manage a company’s finances, giving accounting firms and accounting outsourcing companies alike access to real-time data anywhere and at any time.
Cloud Accounting vs Traditional Accounting Technology
Another way to understand what cloud accounting is is by looking at it through the lens of what it’s not.
Before cloud computing came into the scene, professionals in the accounting field relied on downloadable software like, as we mentioned earlier, Microsoft Excel.
But because accounting is an old practice, accountants relied solely on physical documents and writing implements to perform accounting work. With the advent of cloud accounting, however, financial data suddenly became accessible at any given time and remotely.
So in what specific ways are these two different?
|Traditional Accounting||Cloud-based Accounting|
|Accessibility||Limited access and grants access only to those who have the software or documents||Gives users remote access and can be accessed by several people at once|
|Internet||Does not require internet connection to access||Requires internet connection to access|
|Mobility||Usable only on the device where accounting software is installed or when in possession of paper documents||Usable anywhere and at any time|
|Real-time data||Manual updates required||Automatically updates data across the platform|
|User control||User has full control over the software and documents||User also has full control over their account but not the software|
|Security||Dependent on the device and the safety of paper documents||Dependent on the server and the service provider|
|Costs||One-time payment of software program and other record-taking materials||Often employs a subscription-based model to access the software or services|
|Collaboration||Limited ability to collaborate among users||Allows users to collaborate simultaneously and in real-time|
|Storage||Limited unless user purchases more storage for their hard drive or buys more record-taking materials||Dependent on service provider’s subscription plans|
|Data backup||Requires users to back up data manually||Automatically backs up data|
Why Use Cloud Accounting?
With this newfound knowledge of cloud accounting comes a more practical inquiry. Why should one use cloud-based accounting technology?
There are several reasons why companies and accountants choose to integrate it into their accounting work:
- Real-time data and software or platform updates make accounting work more seamless.
- Accessibility becomes a non-issue, making collaboration easier whether users are in house vs outsourced accounting professionals.
- It is independent of the operating system or device and is available after a few clicks on the browser.
- No installs or downloads are required.
- Backing up data becomes automatic, which can significantly reduce costs — and stress — in the long run.
- Increasing storage can simply be a matter of changing subscription plans.
- Accountants can avoid the different types of accounting errors more effectively.
- Cloud-based accounting platforms are generally modern technology, so user experience is also at the forefront of the service provider’s design.
The reasons for using this highly accessible accounting technology can be unique for every company or accountant. But these are what would often attract professionals in the field.
Should Your Business Switch to this Modern Method of Accounting?
If companies that have switched to cloud accounting are better off with it, it seems that your company should make that switch too, right?
Like any piece of new technology, this one has a few drawbacks as well. For one, its accessibility is contingent on the internet. While you can use cloud software anywhere and on any device, needing it when you don’t have a stable connection is going to be a problem.
Another potential issue is server vulnerability. Your subscription to a cloud software program signals your confidence and trust in the service provider. But with that trust comes an acceptance of risk, whether that involves cyberattacks or security threats. The good news is cloud systems are advanced enough today to ward off such threats; however, some people may still be hesitant to use cloud technology on this account.
A smart alternative would be integration. Instead of replacing traditional accounting methods with modern ones, you have the option to combine them for a more comprehensive approach to accounting. That way, you get to experience the perks of both and minimize potential risks in the process.
Cloud-based accounting is a type of technology that connects users to a service provider’s accounting platform, allowing professionals to access the company’s financial data no matter where they are. As long as a user is connected to the internet, they’re able to use the cloud-based accounting platform through their browser.
Using cloud accounting technology can help optimize your company’s operations. But if you want to boost your productivity further, try our on-time and on-demand accounting services.
If you’re interested in working with NarraSoft’s accounting talent, you can email us at email@example.com. You can also reach us using our contact form or chat box for any inquiries and a free consultation.