What is Cloud Accounting?
6 min. Read
Last Updated: 01/18/2019
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It's not surprising that cloud accounting systems are in high demand, especially since they streamline very important day-to-day accounting processes. Small and large businesses alike can reap the benefits of efficiency and accessibility by using the cloud to manage their financial data. Read on to learn more about cloud accounting systems and how they can help your business.
What is a cloud-based accounting system?
Cloud-based systems, also referred to as software-as-a-service (SaaS) systems, are software programs delivered through the internet. Rather than downloading or installing accounting programs, users log in into an account. All the transactions and data are stored on the software vendor's remote mainframe server, not on the user's personal computer.
Multiple users in multiple locations can access this system online and have confidence that the data they see is current to the minute. Cloud-based systems also tend to be cheaper than traditional accounting software programs, since adding more users only involves creating more user accounts instead of purchasing full licenses of a localized software program.
How does cloud accounting work?
Cloud accounting software is accessible wherever an internet connection can be found. Multiple users can log in to the same system from a smart device or web browser to input relevant accounting data. This data is then updated within the system in real time and made available to all other users.
Cloud systems will also push out software updates, security patches, and other important communications to all users simultaneously, regardless of location. This means all approved users are working with the latest and most secure technology when accessing company financial data. Once a cloud system is adopted, managers no longer need to coordinate company-wide communications or planned off-line time for system changes or updates. Instead, the cloud service provider handles any relevant changes with little effort on the part of company personnel.
Advantages of cloud-based accounting systems
Some of the biggest advantages of switching to the cloud are reduced costs and revenue growth. Transitioning to the cloud can eliminate the need for servers and the overhead costs that come with it, such as IT staff, salary, and network costs. The immediacy of a cloud-based system can also eliminate countless hours of administrative labor that would otherwise be spent entering financial data and generating reports. A user-for-user comparison will also typically be more cost effective for cloud systems vs. legacy systems.
Many businesses also choose cloud systems for the increased analytical capability and accuracy of data used in operational decision-making. Financial questions arise daily from bankers, investors and customers. Although accountants strive to be available to their clients, small-business owners are often expected to be able to provide immediate answers to profit-and-loss questions. Rather than waiting for an accountant to calculate monthly profit or determine how much cash is on hand, a cloud-accounting system may provide answers to these most common questions.
Here are a few additional benefits to consider when adopting a cloud accounting system:
- Ease of use — Online accounting has become very user-friendly, giving small-business owners and solopreneurs the ability to manage business financials with minimal accounting knowledge.
- Storage and speed — By using the remote storage and processing capabilities of the cloud software, local information resources are freed up on company computers to save valuable hard drive space and preserve computer processing speed.
- Security — Cloud accounting service providers are in the business of protecting client data. These service providers have multiple layers of security measures in place to protect both the integrity of the data and the data itself. Companies using a localized accounting program risk losing data, identity theft, intellectual property theft, and computer viruses, among other security issues.
- Flexibility — Users can access, record, maintain, and analyze accounting records from a variety of devices, which offers significantly greater flexibility that most standard local software programs.
- Reliability — If a localized server fails, it's possible that access to a company's financial records may be temporarily restricted. A cloud system helps ensure that users can access financial records whenever and wherever they have internet access.
Many businesses have concerns over whether their data will be secure in the cloud, but it's one of the most secure ways to store data. Cloud-based accounting solution providers maintain a greater level of security than most companies would be able to implement or afford on their own. In fact, reputable vendors are subject to outside audits that ensure the security of their systems. This includes protection from data loss, security breaches, and external data hacking. However, cloud protection is also dependent on how well internal security policies for users are established and implemented.
Help with taxes
For many small business owners, staying compliant is a major tax concern. According to the IRS Taxpayer Advocate Service, a total of 4,680 changes have been made to tax codes since 2001. That's an average of about one modification per day. Though you may have had a good grip on your taxes last year, those specifics may no longer apply.
The lack of an organized accounting system can also lead to problems, such as misplacing receipts and not properly recording payments made to independent contractors for 1099 preparation. Eventually, a disorganized system may have you questioning the total revenue received during the tax year, the amount you paid in estimated taxes, and if your tax deductions such as depreciation, payroll taxes, and employee benefits have been properly recorded.
In contrast, a cloud-based system can have important tax data and financial reports available with a few clicks of a mouse. Many reputable systems can even pull immediate reports formatted for IRS tax law compliance with updated structure for recent changes to tax laws or calculations. Additionally, for businesses that operate in multiple states, cloud computing can help users stay up to date on state-specific tax concerns.
In this increasingly mobile-based workforce, 24/7 access is crucial, and the tools that SaaS-based accounting systems offer can be great liberators of time. While security concerns should not be taken lightly, transitioning your company to cloud-based software can be a straightforward process with the help of financial professionals. Invest time in researching security aspects related to cloud-based accounting systems and investigate which options are best for your business.