Differences Between Traditional and Cloud Accounting

Generally, accounting enables a business to keep track of all of its financial data, including sales, costs, taxes, and more. Actually, the accounting processes of a business involve intricate measures, which are crucial to all business tasks and aspects. And without accurate accounting, a business would not know where it stands financially, which can lead to certain issues and problems. This being said, there are various technological advancements and innovations which led to the development of the cloud. And over the years, the cloud has become an integral business technology tool — leading to businesses implementing cloud accounting to their entire processes.

Over the last few decades, the accounting industry has evolved with leaps and bounds. Accounting professionals already have access to a safe and adaptable platform thanks to cloud accounting. It improves an accountant’s overall workflow and decreases liability while also increasing efficiency. Actually, on-premise software and cloud accounting are quite similar, but there is one significant distinction. On centralized servers that can be accessed online, cloud accounting software is hosted and maintained. Instead of keeping important data on a local computer or server, users can store and retrieve their data using distant servers.

However, prior to moving to remote hosting in the cloud, accounting software was frequently hosted on a desktop computer’s hard drive. On-site software and hardware maintenance fees are included with traditional accounting software in addition to the initial infrastructure expenditures. 

But then, in the recent years of implementing cloud accounting to businesses, it has grown in popularity, particularly as a method of software deployment. It is offered with a number of functions and is suitable for businesses of various sizes. It also positions it as the solution to the financial management requirements of many organizations.

In order to fully grasp this technological innovation and equip it for your business, it is important to understand its differences with the traditional one — which will further be discussed in this article. Keep on reading to learn more.

Cost-Effectiveness

Traditional accounting requires you to purchase the software initially, install it on all the computers that will use it, buy hard drives to hold the software and financial data, and so forth. As a result, you must buy both hardware and software. However, with a cloud accounting system, it eliminates the need for pricey hardware purchases. You only need a computer and an internet connection to get started. The internet-connected cloud-based accounting software can be used on mobile devices as well. You just only have to pay the monthly subscription and the fee for the amount of storage space that your business needs in order to use the cloud accounting software. The fees you will pay may even cover any automatic software updates, which may be costly for the traditional ones.

Furthermore, it is well known that maintaining and repairing technology is more expensive than using a common platform. The overhead costs in a business are significantly reduced since cloud accounting uses remote servers.

Accessibility

The biggest difference is perhaps the most obvious one. With cloud accounting software, you sign in and securely view your financials using a web-based interface. And with a traditional accounting system, on the other hand, you can only view your financial information from the computer on which your program is set up.

In other words, cloud accounting software is off-premise while traditional accounting software is on-premise. Thus, regardless of where you are, you may access your cloud-based financials using your credentials from any connected and compatible device at any time. Traditional software limits your mobility and schedule by allowing you to access your financial information just from that particular device and place. Also, your commitments, schedule, and productivity can be impacted by this.

Additionally, cloud software offers possibilities for redundancy with data backups and maintains all data sources updated in real time. When using conventional software, you must manually update all copies or files containing your information. 

Scalability

Any business that wants to adapt to changes in size and scale needs scalable software. Scalability is actually more challenging in traditional accounting software systems than in cloud-based systems. You must manually upgrade and manage your on-premise software as requirements evolve, creating complexity and unheard-of expenses. On the other hand, cloud accounting software supports company expansion and offers plenty of scalability for a flourishing corporation. This is especially true because it is not constrained by the capacity or bandwidth of the local servers and user devices you can afford to buy and maintain. In order to ensure that you may add resources as necessary, software offers multi-entity and role management.

Data Security

Security can be assessed in two ways. Traditional accounting software provides security in that it can only be accessed by people who have access to that place or computer because it is stored on a specific computer. It cannot, however, ensure protection from theft, system failures, hardware problems, or other threats to the device. In fact, without backups, you run the danger of losing all your data if the computer is compromised.

But then, in cloud accounting, financial data is stored online, raising questions about cybersecurity and hacking. However, these software platforms have been proven to have strong security protections. The servers use safeguards like authentication, encryption, secure backups, and others to guarantee data protection. The benefit of this type of setup is that security is not your responsibility. You can decide on the level of protection that is appropriate for your company and rely on it.

Key Takeaway

Cloud innovations are the future. The ease of having access to your data from any location and on any device is provided by cloud-based software’s security features. This, thus, guarantees the protection of your data. Above all, it is impossible to dispute how seamless and effective the cloud is in comparison to conventional accounting software. But then, in the end, your needs and the nature of your organization will determine which accounting method is best for you — may it be traditional or cloud accounting. Both accounting methods actually have their own benefits and drawbacks, and they are best suited for particular work environments. You should choose wisely based on your financial situation, company information, and account payables and receivables.