What is cloud accounting, and why is it becoming the industry standard?

Traditional accounting is now on the back burner with a new wave of accounting adding efficiency and accuracy throughout businesses worldwide. Cloud accounting is becoming more prevalent as business owners face the digital age.

With a majority of the workforce still remote post-pandemic, the collaboration opportunities and cost-saving initiatives that cloud accounting promote can no longer be overlooked.

Understanding the basics of cloud accounting and the reasons this disruptive technology is at the forefront of innovation will help you decide if this shift is right for your business.

What is cloud accounting?

Cloud accounting involves the recordkeeping of your accounting data over the internet. Instead of keeping spreadsheets, manual notes and desktop software, cloud accounting replaces these methods, providing accessibility from anywhere with an internet connection. Your business may already have cloud computing functions if you use Gmail or Yahoo mail.

What is the difference between cloud accounting and traditional accounting?

There are a few key distinctions between traditional accounting and cloud accounting. The most notable is where each stores data. Traditional accounting stores data on local hard drives, while cloud accounting keeps everything in the cloud. Having your business information located in the cloud prevents data losses and allows for automatic backups.

The next distinction is that cloud accounting provides real-time access to information. Unlike traditional accounting software that must wait to update information, a cloud accounting system automatically pulls the latest data, ensuring you are viewing accurate reports. This is important if you frequently base business decisions on the data in your accounting software.

How does cloud accounting work?

Cloud accounting works based on an internet connection and with a software provider. Most software providers now offer a cloud version of the desktop app to help business owners transition. After you have completed the conversion process or signed up for the cloud-based software program, you will continue processing transactions like normal.

Due to the connection capabilities, businesses are able to connect their bank accounts so transactions seamlessly flow into the program. This significantly reduces the data entry burden and allows you to have access to real-time information to base business decisions on. Since cloud accounting works with an internet connection, you will need Wi-Fi or data to access your business information. If the internet were to go out, you would be unable to connect to your software.

Why is cloud accounting important?

Cloud accounting is important for new, existing and growing businesses. Cloud accounting is vital when your team works in different locations. Instead of relying on desktop software, team members can utilize the internet to stay connected and update the accounting software.

Moreover, for companies focused on going green, cloud accounting can help reduce waste. Purchasing pens and paper can be eliminated with electronic invoicing and bill collection.

When should a company use cloud accounting?

Companies see many different advantages when using cloud accounting. First, costs associated with running accounting software are reduced. Traditional accounting requires each individual to have a computer with the capability to run desktop software. The next benefit of using cloud accounting is that it promotes efficiency and saves your business time.

The use of automation eliminates mundane tasks and allows you to focus on what’s really important in your business.

Additionally, cloud accounting is more secure. When you are housing high levels of transactions and interacting with customers through invoicing and billing, you want to be sure that both you and your customer’s sensitive information is being protected. Computers are highly susceptible to cyberattacks, but your accounting software is secure with multiple safeguards in place.

Collaboration is also promoted with the use of cloud accounting. If your business has employees scattered around the country or world, they can also access your system on their own time. In addition, your accountant doesn’t have to schedule a date to come on-site. Instead, they can receive their own login for your system and access your accounting system. This leads to timely communication and effective collaboration across every member of your team. 

The takeaway

Cloud accounting is becoming prevalent with more businesses taking advantage of the benefits. From eliminating mundane tasks to promoting productivity within your organization, there are multiple advantages to making the switch.