Cloud Accounting: What Is It, How It Works, And Its Benefits

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April 16, 2024

Managing accounting activities in your business could be hectic. However, it is probably the most crucial business aspect that can’t afford a tiny mistake. Today’s digital world will force companies to use advanced tools and software for managing financial activities and transactions. Do you still use traditional accounting methods and spreadsheets? If yes, it is time to migrate to a cloud-based accounting system. 

Cloud accounting can bring numerous benefits to your business. Whether you want to secure your financial data from cyber threats, increase accessibility for remote workers, or prepare statements quickly, cloud accounting can help. Before we dig deeper into the benefits of cloud accounting, let us first define it in layman’s terms. 

What is Cloud Accounting?

Cloud accounting refers to the practice of using internet-based software hosted on remote servers to manage financial transactions, accounting, and bookkeeping activities. Unlike traditional accounting software installed on a local system or computer, cloud accounting operates online. It allows you to access your financial data, input transactions, and perform various tasks from any location with internet connectivity.

Cloud accounting allows multi-user access and secure online storage on the cloud. Cloud technology might be a new term for various businesses, but it is the need of the time. SMEs and large-scale organizations can use cloud accounting software to streamline their financial management and other accounting tasks.

How Does Cloud Accounting Work?

Cloud accounting software/system is hosted on a remote server instead of being installed on a local system or computer. However, some cloud accounting platforms offer limited offline functionalities by allowing users to work on certain tasks or access a subset of features when offline. These platforms typically sync data once an internet connection is re-established.

Business owners, financial managers, and team members can access the financial data from their respective locations. Since the data is stored in the cloud, everyone needs a device and an internet connection to upload or download files. Collaboration and financial reporting are easier in cloud accounting than in traditional accounting methods. Here is how cloud accounting usually works:

i) Access from anywhere:

Cloud accounting comes with the advantage of remote access from any location. Users with authentic credentials, a device, and an internet connection can access data files. Cloud accounting software allows companies to collaborate and share necessary data files on the cloud. The respective team members can access these files for a timely decision-making process. 

ii) Backup and data security:

Is cloud accounting safe? Almost everyone would ask this question before migrating to it! The financial information you upload to the cloud will stay safe from cybercriminals. No one – except the authorized personnel – can access or manipulate the data. Moreover, you can enjoy regular backups of your data. For instance, if you lose certain data files on Premises, you can re-download them from the cloud. 

iii) Real-time updates:

Changes in the data files saved on the cloud can be reflected in real-time. If anyone from your accounting team updates the data, you will instantly see the updated files. This real-time update makes cloud accounting a better option for small businesses and large-scale corporations. 

iv) Multi-user access:

Cloud accounting works on the simple principle of multi-user access. Multiple users from your accounting team can access data files on the cloud and collaborate simultaneously. Businesses with accounting team members scattered across the country can benefit from this feature. Remote employees can access files and make informed decisions. 

v) Scalable when needed:

Cloud accounting solutions can be scalable. Your business needs will change with time; what if you need extra resources to cater to your accounting demands? Growing businesses usually accommodate more users and can expand their operations. The flexible option of scalability can help them add resources. 

Difference between Cloud Accounting and Traditional Accounting

The difference between the two terms is that cloud accounting is an online-based accounting system accessed through the Internet, offering real-time data access, enhanced collaboration, and scalability. While traditional accounting relies on locally installed software, limiting accessibility and requiring manual updates. The benefits of cloud accounting make it a superior option. You can find multiple differences between traditional and cloud accounting. The following list will explain a few. 

i) Accessibility:

  • Cloud accounting: Cloud accounting is a web-based software tool hosted on a remote server. Accounting users of a company can access the financial data using a relevant device with an internet connection. The data is accessible from any location. This flexibility and easy accessibility make cloud accounting a better option. 
  • Traditional accounting: A traditional accounting system is installed on local computers and on-premise servers. Access to financial data is often restricted to devices. Remote employees can’t access the data without visiting the office. 

ii) Collaboration and Real-Time Data:

  • Cloud accounting: Cloud accounting facilitates collaboration among team members. The accessibility option allows team members to work on a similar financial document simultaneously. If you are an SME, using a cloud accounting system like Xero Accounting UAE can enhance collaboration, provide real-time data, and yield great returns. 
  • Traditional accounting: Collaboration in traditional accounting could be challenging – especially when multiple users access a file. Real-time updates may be challenging in this setup, as it takes time to update the interface. 

iii) Data Security:

  • Cloud accounting: Cloud accounting implements security protocols to keep your data secure from cyber-attacks. The cloud is probably the safest place for your sensitive financial data. No one but authorized personnel can access and edit it. It would be best to migrate to a cloud-based system to ensure high-end security for your accounting data. 
  • Traditional accounting: Data security measures in traditional accounting are not as strong as they should be. Data security depends on individual business security efforts and protocols. Moreover, backups are manual and are prone to human mistakes. 

iv) Automatic Updates:

  • Cloud accounting: The seamless and automatic updates in cloud accounting make it a perfect choice for small and medium-sized businesses. Users can always access the latest features with little disturbance from bugs. 
  • Traditional accounting: There is no concept of automatic updates in traditional accounting. It takes manual installation to update your current traditional accounting system or spreadsheet. Your accounting system might encounter downtime issues during the updates. The accounting team is responsible for the upkeep and updating of the traditional accounting system. 

v) Costing Structure:

  • Cloud accounting: Cloud accounting usually follows a subscription-based model. Business owners can pay a recurring (monthly or yearly) fee to access the services and features of cloud accounting. It leads to a lower upfront cost; enterprises can scale up resources when needed. When scaling up, businesses must pay extra money to unlock new features. 
  • Traditional accounting: Traditional accounting requires business owners to pay a huge upfront cost when purchasing software licenses. Purchasing servers and ongoing maintenance expenses can also cost enterprises a handsome amount. Besides these, upgrades in traditional accounting can also result in additional charges. 

What are the Benefits of Cloud Accounting?

Cloud accounting has multiple advantages for SMEs and large-scale organizations. On-premise solutions can be good, but they are prone to numerous risks. Companies that migrate to a cloud-based accounting system can enjoy game-changing benefits in terms of productivity, collaboration, and data security. Costs and other maintenance expenses can also be reduced due to the flexible payment model of cloud accounting. Let us explain a few benefits of cloud accounting in detail! 

1. Automation leads to accuracy:

Business entities always need accurate and updated data to make informed business decisions. Getting these accurate results could be hectic if a business uses traditional measures like spreadsheets and other on-premise solutions. The physical type of paper process is prone to human mistakes and theft. Why not consider accounting automation to rule out chances of errors? 

Using cloud accounting software can allow businesses to enjoy accurate and timely data insights. Companies can enjoy a real-time view of their financial positions, highlighting weak zones and vulnerabilities. A current view of your financial position puts you in a better position to make informed decisions and drive your business along the right path. 

2. Reduced overhead expenses:

Cutting costs and expenses is probably the goal of every organization. The accounting department must take measures to reduce expenses. Using on-premise accounting solutions requires you to invest huge upfront costs in purchasing licenses and servers. Moreover, employing an IT expert for maintenance could be an additional expense. 

Cloud accounting is probably a time-effective solution for businesses to cut costs and improve productivity. It eliminates the cost of maintaining an IT infrastructure in your company. The easy-to-understand interface allows everyone to operate the software and perform necessary tasks. 

3. High-end accessibility:

Accessibility is probably the biggest advantage of cloud accounting. You enjoy the freedom of accessing what you need when you need it. All you need is a device and internet connection to access the cloud and download the required data files. Companies with remote employees can benefit greatly from this feature. Since not every employee can attend onsite meetings, remote access to the data files will streamline the overall work experience and flow. 

Cloud accounting offers endless real-world benefits with its high-end accessibility. Productivity does not require employees to be present at the office. They can be anywhere and still be productive. They can access information and complete the assigned tasks before the deadline. 

4. Collaborative accounting:

Remote and hybrid work models highly dominate the post-pandemic era. Collaboration has always been an issue in remote work setups – especially for accounting teams. However, cloud accounting has fixed the issue, thanks to the remote server access. Firms, clients, and employees can collaborate when the accounting operations are run on the cloud. Everyone with an internet connection can access the data files, make changes to them, and update the files. 

Collaboration through cloud accounting allows team members to develop a sense of teamwork and connectivity. It would be best for companies to migrate to Xero to put their accounting team together and improve collaboration. The company can experience enhanced business decision-making processes. 

5. Improved data security:

Information security is probably the biggest concern of almost every business. Protecting the sensitive information is crucial to keep the customers’ trust intact. It is also vital for your brand and revenue stream. A breach of information could be catastrophic; you can experience financial and moral losses in the industry. Using cloud accounting can provide you with improved data security as no one can breach the cloud security protocols. 

On-premise accounting solutions sound safer, but they are vulnerable to numerous threats. What if there is a cyber-attack or data breach? What if physical damage leads to data losses? It is always necessary to be serious about your data security and use highly secured protocols. Cloud accounting software would be a perfect option! 

6. Better scalability:

Growing businesses always need new resources to cater to their growing business needs. The statement stands true for accounting needs as well. Managing your finances with spreadsheets becomes hectic when your business expands. However, cloud accounting allows you the freedom to unlock new features to improve financial management. On-premise accounting solutions often offer limited resources. However, with cloud accounting, the features and resources are too numerous to count. 

7. Customization:

The financial needs of every business will differ. Therefore, customized accounting software always makes sense. A cloud-based system like Xero accounting software is probably the best option businesses can choose for customized accounting services. It can be tailored to the specific accounting needs of your business. The tool also allows you to tailor solutions and workflows for better company operations. 

The building of personalized dashboards allows every user to enjoy an at-glance view of the accounting infrastructure. Various critical accounting metrics can be made easier with customized solutions. Moreover, the addition of company-specific terminologies will make things easier. 

8. Less administration:

Administrative tasks are often time-consuming, especially in large-scale businesses. Business owners often need to contend with hectic tasks like software installation, data backups, and other administrative tasks. Using traditional accounting methods will expose business owners or team members to these administrative tasks. However, with cloud accounting, you are less worried about these tasks. The easy-to-understand interface of this web-based software can remove the tension of administrative tasks. 

Running a cloud-based accounting software like Xero does not require you to invest in servers or other IT infrastructure. Moreover, you don’t even need to take regular backups of the financial data, as the software provider can do it for you. Why not reduce extra administrative tasks with Xero implementation services? It makes sense! 

Let Alpha Pro Partners Be Your Cloud Accounting Service Provider! 

Alpha Pro Partners prides itself on providing cloud-based accounting services to various businesses and industries. Our customer-centric approach makes us the best choice for this critical task. We have years of experience in catering to the financial accounting needs of different sectors and industries. You can put your trust in us for robust Xero implementation services. Contact us today to get started with your Xero installation process! 

Cloud Accounting FAQs:

1. What is cloud accounting software?

Cloud accounting is a web-based software that allows businesses to store their critical financial data on the cloud. The data can be accessed remotely from anywhere using a device with an internet connection. 

2. Is cloud accounting safe?

Yes, cloud accounting is a safe approach as the data is stored on the cloud. Hackers and other bad actors can never breach the walls of the cloud. You can reduce the chances of data breaches and manipulation with cloud accounting services. 

3. What are the benefits of cloud accounting?

Cloud accounting brings numerous benefits to businesses. They include accounting automation, data security, accurate and timely financial results, less administration, and customization. 

4. How is cloud accounting accessible?

Cloud accounting comes with easy accessibility for all employees. Anyone with a device and internet connection (with credentials) can access the cloud-stored data and download it for business purposes. Remote employees can also benefit from this accessibility feature. 

5. How does cloud accounting make collaboration easier?

Accounting team members in different locations can access the cloud-based data, download it, and discuss it for business purposes. Everyone can attend this virtual meeting to enhance collaboration and give useful input. 

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