The Key Differences Between Cloud Accounting and Traditional Accounting Systems

Introduction

The choice of cloud accounting vs. traditional accounting is a major decision for business owners looking to manage their financial data effectively. Technological advancements have seen people switch from manual bookkeeping and desktop-based software to cloud computing operations. While this promises great prospects, you must know which alternative best suits your business needs.

This article helps you decide if locally storing your data on company servers or physical ledgers meets your organization’s current needs. It also assists companies looking to scale up their numbers in determining whether to migrate to cloud-based systems or a software-as-a-service platform.

Keep reading to understand the key differences between cloud accounting and traditional accounting for organizations aiming for improved financial systems.

What is Cloud Accounting?

Cloud accounting is the use of software-as-a-service (SaaS) solutions to manage and process financial information by storing it in the cloud instead of local computers or paper records. This type of accounting is great for teams that need synchronized data access across business devices.

For example, every financial transaction automatically updates and is accessible in real-time on remote servers. It allows for quicker and data-driven decisions to meet up with the frequent market needs.

What is Traditional Accounting?

Traditional accounting is a desktop-based financial management system that uses local computers, physical servers, or ledgers. It is a conventional record-keeping method that is similar to manual bookkeeping practices and limited to specific devices or locations. Unlike cloud-native applications, traditional accounting requires manual backups and updates which are time-consuming and error-prone. However, some businesses find advantages of traditional accounting in its suitability for on-premise financial data control. The major limitation is restriction in real-time collaboration and data sharing.

What are the Differences Between Cloud Accounting and Traditional Accounting Software?

Learn about the functions to decide between cloud accounting vs traditional accounting.

1. Cost-effectiveness

The overall running cost of both financial management systems is the first difference between cloud accounting and traditional accounting. With cloud-based software, you only subscribe for specific features with lower startup prices. Your business uses accounting software with different subscription plans to choose the most relevant features based on start-up needs. It is different from traditional or desktop accounting where you spend on purchasing different hardware and software and setting them up. Traditional accounting can also include the cost of updating licensing packages and money for frequent upgrades and additional storage, unlike cloud-based data tools.

2. Remote Collaborations

Another difference between cloud accounting and traditional accounting is the possibility of remote team collaborations on cloud-based financial applications. Organizations with many employees will function more effectively when members can collectively access the same documents in real-time. It is faster than having only one person or one physical company branch work on financial records at a time. The increased accessibility and collaborative features of accounting clouds reduce room for errors that might occur when manually transferring records to different files.

3. Data Storage and Security

Compared to traditional accounting, cloud-based solutions offer you higher storage capacity and accessibility over multiple company devices. Data security is also one of the differences between cloud accounting and traditional accounting. Locally storing your financial data on physical computers exposes the organization to the risk of data loss from hardware failure or theft. With cloud accounting, there is enhanced security through encryption and real-time backups over the use of passwords to protect sensitive financial information. Your company is also protected against personal loss of data if an unexpected issue happens with cloud accounting than with traditional accounting software.

4. Integration

The seamless integration of cloud-based accounting systems with third-party applications such as CRM software helps with important automation. Businesses can efficiently compile their financial data such as inventory management numbers instead of manual traditional accounting entry using Ms-Excel or similar data entry tools. The integration is a major difference between cloud accounting and traditional accounting with cloud-based solutions providing accurate reports that are not time-consuming. Tracking important sales records is also easier using cloud accounting since you can integrate billing systems with your payment processing platforms.

5. Technical Support

Cloud accounting software providers usually offer 24/7 technical support to ensure immediate resolution of issues faced by users. Business accountants using cloud-based solutions can always contact technical staff online or through chat without traveling long distances for fixes. This ease of promptly fixing software issues is another difference between cloud accounting and traditional accounting. The availability of cloud-based tools for remote technical support teams enhances effectiveness for larger organizations over traditional accounting support that is physically restricted with limited working hours.

Scalability and Functionality

A good business accounting solution is only complete when you consider flexible scalability options. As your company sales numbers improve, you might require more data storage capacity or higher analytical features to observe customer insights. The major differences between cloud accounting and traditional accounting include scalability and functionality plans. Since cloud accounting is mostly subscription-based, you simply need to just upgrade to higher-paid plans. However, traditional accounting might require investing or purchasing more desktops or systems to store more data or accommodate more team members.

Cloud Accounting vs. Traditional Accounting: Which One Is Best for Your Business?

Learn the factors to compare the differences between cloud accounting and traditional accounting.

• Data Control: Traditional accounting is better for small and medium-sized enterprises that prefer full control measures such as on-premise information sharing.
• Budget: For some people, a one-time setup and purchasing cost is better to get started than saving for continuous subscription costs. While cloud accounting setup is cheaper, the choice depends on your company’s preferences.
• Long-term Stability: Your firm might not need to switch to cloud-based financial software if you are already invested in traditional accounting without issues.
• Security Preference: Some organizations with very sensitive information can prefer to not store their confidential information online. However, cloud security works for smaller firms that might need a safe network for data collaborations.
• Work Flexibility: Organizations with remote teams that need to access relevant financial data should choose cloud accounting for better workflow and effectiveness. Traditional accounting is for those teams around the same physical location and without the need to jointly access files.

Conclusion

The differences between cloud accounting and traditional accounting are important when deciding on a financial management method. While both accounting systems are excellent, they have advantages and disadvantages that determine suitability for specific business expectations.

Organizations with an existing local accounting setup for a smaller team might maintain their traditional method instead of switching to a cloud-based solution. However, the same company can opt for cloud accounting to scale up and accommodate more teams.