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Many companies have turned to accounting for cloud computing for secure, efficient ways to store, process and manage their data. 67% of accountants believe that their business is made more successful by cloud technology.
Cloud accounting is based on remote servers, which are typically accessed over the Internet. The service models encompass platforms, software and infrastructure. Application functions are performed off-site instead of on the user’s desktop.
Transitioning to cloud accounting or implementing a new cloud computing arrangement can be highly beneficial, but can also involve significant costs. Here’s everything you need to know about cloud technology in accounting.
Table of Contents
Introduction: What is Accounting for Cloud Computing?
Understanding accounting for cloud computing is pivotal to achieving your financial goals and meeting your operational needs.
With cloud technology for accounting, hosting and updating the accounting software is managed by the provider. You shift your books online and can access the software with an Internet connection and a browser. Payment is done on a subscription basis.
All cloud-based systems will bring a range of benefits, such as access to updated, accurate data while travelling or from home. Some systems offer more advanced capabilities, such as accounting automation. Having said that, many companies choose specialized accounting automation software, such as CrushErrors.
Cloud Accounting vs Traditional Accounting Software
You will find several distinctions between on-site accounting and cloud accounting.
Cloud accounting tends to be more flexible. You can access accounting data from anywhere, on any device, with a working Internet connection. Hence, you are not limited to a few on-premise computers.
Cloud accounting software automatically updates financial information and provides real-time financial reports. Traditional accounting software does not do this. This translates to fewer errors, more accuracy, and better management of multi-company and multi-currency transactions.
With on-premise software, each time your company grows, you will encounter greater maintenance and software costs, in addition to new fees, licenses and possibly hardware. With cloud accounting, there are no large, sudden spikes in costs every time your organization grows a little.
Accounting for cloud computing requires much less maintenance than traditional software. This is because the cloud service provider does the backups and updates. Nothing needs to be installed or updated from the company’s side.
Benefits of Cloud Accounting
The many benefits of cloud accounting, along with easing the burden of hardware management, have been the primary drivers for its adoption.
1. Ease of Compliance
There is a substantial LAMP ecosystem, because it is an open-source stack that has been around since the late 90s. Your LAMP developers can build on what others have already done and make something unique to your business needs. Hence, you reduce development time.
Cloud accounting helps organizations with tax compliance. It does this by producing yearly tax returns, quarterly tax estimates, and accurate financial statements.
This way, business owners can avoid under-reporting tax liability, which could lead to fines or audits, or paying too much because of over-reporting.
It helps ensure compliance with any applicable tax regimes by automating both international and domestic tax calculations.
Certain cloud accounting solutions even automate revenue recognition in order to comply with accounting standards.
2. Scalability
As a company expands, managing finances with spreadsheets alone becomes unmanageable. Furthermore, desktop-based accounting systems tend to offer limited functionality, which can be a hindrance to growing a business.
Accounting for cloud computing can scale to match your business needs. You can begin with basic accounting functions and increase features and users as your company grows.
3. Less Administration
Business owners no longer need to contend with time-consuming installation, backups, and other administrative duties.
Running your accounting software will not require buying or managing servers or other IT infrastructure.
Critical financial data is automatically backed up regularly by your accounting provider.
Staff can spend more time on productive activities rather than administration.
4. Automation
Manual work is reduced thanks to automation of many accounting and banking tasks.
For instance, the accounting cloud software can automatically import credit card and bank transactions, schedule reports, pay subscriptions, produce recurring invoices, and even post transactions to the right ledger.
It can also automatically calculate discounts and taxes and pinpoint exceptions where purchase orders do not match invoices.
Some programs are especially useful for international sales, and automatically manage tax calculations for various countries.
5. Software is Always Up-to-Date
Since the software is in the cloud, you will always access the most up-to-date version, no matter when you log in. Software is automatically updated to include changes to accounting rules and tax rates, and new features are added.
6. Paper-free/eco-friendly
Traditional accounting entails no small amount of paperwork.
However, in today’s digitized world, it is unnecessary and inefficient to store physical records or distribute physical reports to lenders, investors and other parties.
Invoices can be sent electronically and imported to the cloud accounting system.
Receipts and paper bills can be scanned for processing.
Reducing hardware and server usage has a positive impact on the environment.
7. Data Security
Many people have concerns about storing sensitive financial information in the cloud. However, in several ways, cloud accounting actually enhances security.
Multiple security levels including advanced encryption and access control, so only authorized users can access the data.
Risk of loss of vital records is reduced since all the data is automatically backed up.
In the unlikely event of the office being damaged by a fire or natural disaster, your data will still be available online.
8. Accuracy
Automation will reduce the risks of human error in manual steps. It can match received invoices to shipments and payments, and even automate reconciliation processes.
However, we do recommend professional daily bank reconciliation services and credit card reconciliation services to prevent any potential slip-ups. Contact NextGen Accounting
today for a free quote. If it doesn’t pass the audit, NextGen will pay the fees.
9. Customization
Cloud accounting software can be customized to suit your unique business needs.
Some cloud solutions allow you to adjust workflows and processes to better match the way your organization operates.
You can create personalized dashboards that provide every user with a view of important metrics and other data.
Company-specific terminology and corporate branding can also be added.
10. Accessibility & Availability
With the increasing adoption of remote work, accelerated by the Covid-19 pandemic, not everyone wants to be confined to the office. Even if that is not the case, one cannot always remain at the office building.
With accounting for cloud computing, any authorized users can log in from anywhere with an Internet connection and a mobile app or web browser. They won’t have to wait till they’re back in the office to send invoices or approve payments.
Additionally, accounting team members will always have access to updated information and real-time analytics. It is also easy to share documents with staff who are traveling or working remotely.
11. Data Visualization & Real-time Reporting
When you use paper-based processes or spreadsheets, it can be difficult and time-consuming to get accurate, up to date views of your business performance. Consequently, you might not spot issues early enough to stop them from snowballing into bigger, more serious problems.
Accounting for cloud computing can solve this issue by offering you real-time access to updated, centralized financial information, including reports and analytics. Complex data is translated into KPIs and charts. Visualizing information will empower your team to quickly gain new insights and identify trends that are impacting your company.
12. Integrated Applications
Certain cloud accounting solution providers offer suites of integrated business apps that share a central database.
As your organization expands, you can add modules that manage various aspects of your business, from inventory management to payroll. Some leading solutions also have ecosystems that include hundreds of vendors providing complementary products or additional automation.
Conclusion
As accountants adjust to a shifting landscape, most of them report efficiency and time savings as crucial reasons for adopting new tech. While many have already started using accounting for cloud computing, there is much to be done to normalize it across the US.
What do you think? Would adopting cloud technology in accounting be beneficial to your company? Let us know in the comments!