What Is Cloud-Based Accounting? A Quick Guide

Last Updated: January 24th, 2023
Researched and Written by: Katherine Boehm

Businesses of all sizes wrestle with the demands of accounting. Accounting software automates these time-consuming tasks and minimizes critical errors. Cloud-based accounting software provides secure access to accounting functions online from any device with an internet connection, without the expense of on-premises accounting solutions.

In this post, we give you an overview of cloud-based accounting, its benefits, and when to use it.

What Is Cloud Accounting?

Since the early 2000s, businesses have been using cloud accounting software to manage their finances online. This software helps streamline bookkeeping and accounting tasks like invoicing, accounts payable and receivables, financial reporting, and everything you need for accurate and orderly financial books.

Cloud accounting is an alternative to installing software on site (on-premises software) or using cumbersome and error-prone paper books. Your employees and third-party accountants can sign in through the internet to access your digital account in the cloud from anywhere. Through this connectivity, they can access the software when and where they need it.

Your accounting data in the cloud is highly secure because it’s encrypted, password-protected, and backed up to an internet-accessible server known as the cloud.

Cloud Accounting vs. Traditional Accounting Software

The following table highlights the differences between accounting software that’s available on the cloud vs. on-premises.

Feature Cloud-Based On-Premise
Installation On the provider’s cloud servers On a computer or your company’s internal servers
Access Web browser or mobile app Application installed locally on a desktop
Updates Automatically by the provider Manually by your company
Data Storage Secure data storage by the provider Data storage and security on site by your company
Scalability Scalable based on the number of users Not easily scalable as your company grows
Pricing Usually subscription-based, pay only for what you use Price of the software, plus additional costs for the servers, data storage, and IT staff for maintenance

How Cloud-Based Accounting Works

Many cloud-based accounting solutions run on the software as a service (SaaS) model, in which the software is web-hosted, not locally installed on a computer. SaaS is subscription-based, so subscribers pay a monthly or yearly fee. With the SaaS model, multiple businesses share space on a public cloud server. Other models store a company’s data on a private cloud, and hybrid models store data on both a private and public server.

Basic accounting software options run only your accounting operations and related tasks like timekeeping. However, more holistic options run your entire business, like ERP software, and include comprehensive accounting tools.

Talk to one of our expert software advisors today to find accounting software for your business!

Benefits of Cloud Accounting

By moving your company’s accounting needs to the cloud, you get the following benefits.

  • Simplified Scalability
    As your company grows, you can easily scale your accounting software when storing data remotely on the cloud. You don’t need to purchase additional hardware or server space like you would with traditional, on-premises software. When you need to add users to your cloud accounting software, you pay per user or a flat fee for a set number of users.

  • Helpful Integrations
    Cloud accounting software integrates with other critical business software that your business already uses. You can also integrate add-ons, like time tracking, HR, CRM, and project management tools, to help your business run smoothly. Many cloud accounting software providers include mobile apps that give users access to a host of accounting features on the go.

  • Easy Implementation
    Implementing cloud accounting software is fast and easy since you don’t need to purchase or configure servers on site and train your IT team. Instead, you can simply link bank accounts to manage your company’s finances.

  • Lower Costs
    Although you pay for cloud accounting software on a subscription basis, the overall costs are usually less expensive than on-premises software. For example, on-premises software typically has a hefty initial setup fee and additional fees for updates to the software. Also, the expenses for cloud accounting software are overall more predictable than on-premises software.

  • Automatic System Upgrades
    Unlike traditional accounting software, the software provider upgrades the system automatically on the cloud. These automatic upgrades save you time on lengthy software updates. They also give you peace of mind, knowing that your software is always up-to-date.

  • Real-Time Data Continuity
    A fully integrated system means all your financial data is stored in one place. When you enter it into the cloud, it automatically transfers to other systems within the software in real time.

  • Dependable Security
    Cloud-based accounting software runs fewer risks of stolen data because it’s stored on a remote server, not on a local hard drive on your desktop computer or an on-premises server. Because of the data involved, it must comply with certain governmental and industry regulations to protect and secure the data. Also, these solutions come with dedicated resources and expert staff who regularly maintain their servers and software.

  • Time-Saving Automation
    You can automate vendor payments, recurring invoices to clients, bank reconciliation, data entry, and more. By streamlining your accounting with a cloud-based solution, you save your business valuable time and resources from installing and maintaining a solution on-premises.

Further Reading: Cloud vs. On-Premise: What’s the Difference?

When Should Your Business Use Cloud Accounting?

If your business has employees who work from home or away from the office, you need the remote access cloud accounting provides. Also, if your company employs third-party accountants or bookkeepers, giving them remote access is critical for them to complete their work in a timely manner.

Use cloud accounting over traditional accounting software to save time and money on server infrastructure implementation and maintenance. With traditional accounting software, you must store your data in on-premises servers that require the expertise of IT staff, who can come at a high cost to your organization. These costs quickly add up far exceeding what you can expect to pay for a cloud solution, where the software provider must store and manage the data and maintain the software.

As more accounting software goes to the cloud, on-premises versions are discontinuing at an increasing rate. With cloud accounting software, you always have the latest version and support from the provider.

Businesses of all sizes can benefit from using cloud-based accounting software. However, small businesses, in particular, reap the benefits of these fully scalable accounting solutions.

Move Your Accounting to the Cloud

When choosing cloud-based accounting software, look for software that matches the size and needs of your organization. Choose a high-quality solution that follows standard accounting industry practices, is easy for your users to learn and adopt as part of their accounting workflow, and provides data security and management.

Further Reading:

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