Accounting is a language that has evolved over the years. Luca Pacioli who is known as the father of modern accounting built the foundation for accounting and bookkeeping by introducing double-entry system. It is started with a paper-based system and then progressed using calculators. Spreadsheets and accounting software were introduced in the 20th century with the revolution of computer technology. Finally, now it has come to the era of Cloud Accounting.
What is Cloud Accounting?
The earliest evidence of cloud-based accounting software comes with the introduction of NetLedger software. It was introduced in 1998 and is currently known as NetSuite. As per the Sage Practice of Now 2018 report, 67% of accountants preferred to use cloud accounting. Further Accounting Today reports that 58% of large business organizations have already embraced cloud accounting technology.
Cloud Accounting can be simply defined as using web-based accounting software, which can be accessed through the internet for all the accounting, and bookkeeping-related tasks instead of using a software, which is installed on your company’s desktops. This evolution has enabled accountants to be more efficient in their work and improve their skillset.
Cloud accounting vs traditional accounting
According to 2019 Buyer’s guide to accounting and financial software which was published by Sage Intacct, there are three software delivery model options to consider when selecting an accounting and financial software solution. They are:
– On-Premises solutions
– Hosted Solutions
– Cloud-based Solutions
On-premises solutions simply mean, the software is installed and run in devices, which are in a specific location. This can be a time-consuming, difficult and costly solution for organizations. The infrastructure of the hosted solutions is not located in the clients’ physical location. These can be accessed via secure network connections such as VPN.
Cloud accounting enables users to access the software through the internet regardless of their locations. The infrastructure of web-based solutions is hosted on a remote server and maintained by the cloud vendor.
Advantages of Cloud Accounting
1 . Affordable pricing plans
Most of the pricing plans of Cloud Accounting software start at a very low price and include all the the fundamental accounting and bookkeeping needs. Cloud accounting vendors can offer the service at a low price because their total cost spent on infrastructure is spread over the entire customer base. (Similar to the production concept – Higher the quantity – lower the price) Further, companies can benefit from Cloud Accounting software as it has a very low initial investment compared to hosted solutions and on-premises solutions.
E.g., Xero pricing plan starts at AUD 27 per month
2 . Integrations
Cloud Accounting software have integrations with hundreds of thousands of other applications. There are app integrations for time tracking, inventory management, Payroll management, Invoicing, payment management, etc. These partnerships will reduce the manual processing; human intervention and eventually increase the level of accuracy and the quality of the financial statements.
E.g., Xero payment integrations – Stripe, Paypal
Xero inventory integrations – DEAR Inventory, EzzyBills
3 . Upgrades
Experts in Cloud Accounting software companies will work on the appropriate changes and add relevant upgrades to the system according to the rapid changes in the accounting world. These new additions and upgrades will reduce workload, save time and other resources of the organizations while creating smart & efficient workplaces.
E.g., Xero has introduced a budget column, compact view in reconciliation screen, budget-related reports in its quarterly product update which was held in February 2022.
4 . Data Security
According to the annual Cost of a Data Breach Report (by Ponemon Institute & IBM Security), it is evident that there was a significant increase in data breach cost in 2020 compared to the year 2021. Further, this can be considered as an eye-opening fact because in the year 2020 total data breach cost was $ 3.68 mn and in the year 2021, it has increased to $4.24mn.
These statistics increase the demand for secured accounting solutions. Cloud Accounting software companies provide a high level of protection to the data and hold the responsibility of backing up data on behalf of their customers. It reduces the risk of data loss related to human intervention (liquid spills, deletion, formatting) and power outages, malware attacks, theft, and so on.
5 . Easiness in implementation
The implementation of cloud accounting software is quite simple, as it does not require substantial capital investment or a large staff of qualified IT specialists. Most web-based accounting solutions enable users to import transactions from their existing software to speed up the work. Further, companies do not need to provide continuous and additional training (technical know-how) for the employees regarding this commonly used software. Many third-party institutions provide adequate training and knowledge about this web-based software. More importantly, companies can get the assistance of 24/7 help centres which are maintained by Cloud vendors.
6 . Access to real-time data & increase collaboration
Access to real-time data can be recognized as one of the major advantages of using cloud accounting software over a traditional on-premises accounting procedure. Information seekers can instantly view the impact of every transaction because every single piece of information is connected to one software, and that particular software can be accessed through the internet.
Further, the act of working together or collaboration can be effectively increased by giving the appropriate level of access to the users.