What is Cloud Accounting & How Does it Work?

What is cloud accounting, and why should you care? In a nutshell, cloud accounting is doing your bookkeeping and accounting tasks online using secure software that lives in "the cloud."

Besides being convenient, affordable, and eco-friendly, cloud accounting can help improve your business's bottom line by automating time-consuming tasks, providing real-time insights into your finances, etc. So keep reading to learn everything you need to know about this modernised way of keeping your books!

Cloud accounting is a relatively new term that you may have heard floating around, but what is it, and how does it work? In short, cloud accounting is the shift from traditional software to software-as-a-service (SaaS) models.

Rather than install and use the software on your computer or local server, with cloud accounting, you access your account information and complete tasks online through a web browser. This can be done from any computer or mobile device with an internet connection.

Because the software resides in 'the cloud' – meaning on remote servers operated by the software provider – updates and maintenance are taken care of by the vendor, so you don't have to worry about them.

If you're like most business owners, you're always looking for ways to make your operations more efficient and productive. One way to do that is by using cloud accounting software. But what is cloud accounting, and how does it work? In this blog post, we'll answer those questions and give you a few reasons why you should consider using cloud accounting for your business.

Let's get started!

What is Cloud Accounting?

There is nothing novel about the practise of keeping track of one's previous financial performance by documenting one's small business's revenues and expenditures. Accounting software has been available for decades, while double-entry bookkeeping has been around for centuries; together, these two practises give finance teams the capacity to record and track the money coming into and going out of the organisation.

So, how exactly does cloud accounting make this situation better? Let's have a look at some of the most important distinctions:

1. Traditional accounting software

Desktop-based accounting software was the norm prior to the advent of cloud computing. In other words, the application itself was installed into the hard drive of your workplace desktop computer and then executed from that location. Unfortunately, this has a number of problems, some of which include restricted access to your data, the need to continually upgrade your programme, and the ongoing cost of storing up all of this financial information.

2. Cloud accounting software

The functionality of cloud accounting (also known as online accounting) is identical to that of desktop accounting; the only difference is that cloud accounting moves the entire process to the cloud and adds to it. There is no desktop programme; rather, users log in to an always-up-to-date online solution, and all of their data is saved securely on a remote server in the cloud. The vast majority of cloud platforms will also offer an open application programming interface (API), which indicates that third-party software can interact with your system to add value to your company.

Change From Conventional Accounting Software to Cloud-Based Accounting Software

Accounting software has helped organisations cut down on the amount of time spent on the process of record keeping while simultaneously enhancing its overall efficiency. Historically, the process of recording keeping has been a laborious endeavour.

What other advantages does using accounting software have? The solution is to use accounting software that is cloud-based. Accounting software that is hosted on the cloud is the next generation of accounting software, which is both more effective and more convenient. Because of the advancements in technology that have taken place over the past few years, it is no longer necessary for you to be seated in front of a desktop computer in order to be aware of your current financial situation. Cloud-based accounting software has made this possibility conceivable.

Accounting software that is hosted in the cloud has made it possible for business owners to centralise and streamline the accounting processes for their companies at their fingertips. You will no longer be required to move files from one location to another when you make use of accounting software that is hosted in the cloud. Instead, with the assistance of a safe login procedure, you are able to access any and all of your financial information directly from any device.

They make use of accounting software that is hosted in the cloud in order to deliver accounting services. The owners of businesses are able to monitor the status of their financial situation at any moment with the help of this. In addition, using accounting software that is hosted in the cloud has been a huge help because it has shortened the amount of time needed to deliver any information to customers.

The days are long gone when a client was required to get in touch with the company every single day for any communication. Instead, cloud-based accounting software makes approximately half of the process simpler and more streamlined than it would otherwise be. They have helped their customers speed the accounting and bookkeeping process by utilising cloud-based accounting software, which they employ for practically all of their customers, and they have made full use of the platform's capabilities.

Advantages of Cloud Accounting

The transition of accounting functions from local computers to remote servers in the cloud has been an enormous step forwards for financial management. Because of this, a significant number of the negatives as well as the financial implications are removed from the equation. However, what specific advantages does cloud accounting provide for your company?

The following is an outline of the primary areas in which a cloud-based accounting system contributes actual, concrete value.

1. Get access to your accounts from any location

Accounting in the cloud eliminates the necessity of working from a single centrally located office computer by providing round-the-clock access to your most important business numbers from any location with internet connectivity. You can access your accounts by logging in through a web browser on your desktop computer, or you can use the mobile app provided by your internet service provider on your phone or tablet.

2. Quick and easy access to up-to-date data

You may accomplish real-time reporting by maintaining accurate bookkeeping and reconciling your bank accounts on a regular basis. You do not need to look at previous reports that are several days, weeks, or even months out of date because you have rapid access to an overview of the current financial status of the company. When analysing your current cash position, preparing for future spending, and making significant financial and strategic decisions as a management team, having this real-time insight is essential.

3. Use of the application ecosystem

Open application programming interfaces allow you to extend the functionality of your primary business system by adding a variety of apps and tools developed by third parties. There is an app for estimating cash flow, there is an app for online invoicing, there are tools for managing projects that are relevant to the business, and there are a lot of other practical alternatives to pick from. These technologies give you the ability to save time, cut down on the costs of resourcing, spot problems further in advance, and, in general, alleviate the burden of superfluous administrative work that is weighing you down.

4. Live bank feeds

There are a lot of cloud accounting platforms out there, and many of them offer live feeds to your bank accounts. This gives you the ability to combine your accounting directly with your banking. A live feed brings your bank data straight through into your accounts, eliminating the need to manually key in each line of your bank statement or upload a CSV file that you've downloaded from your online banking portal. This will speed up the process of reconciling your bank accounts and offer you a more accurate snapshot of the balance in each account.

5. Utilising the most recent software release at all times

You will always be using the most recent version of the programme whenever you log in to your cloud-based accounting platform. Because there is no requirement for time-consuming and expensive upgrades, all that is required of you is to sign in and get to work. In addition to this, you won't need to worry about applying any necessary security patches because your software supplier will take care of that for you automatically.

6. Safe transmission of information

Using cloud accounting software, you may simply allow access to your accounts when you are working with your accountant, bank, or other consultants. This makes collaboration much simpler. There is no requirement to use USB memory devices or communicate with one another via email. Your advisors can view all of your current and historical financial data in a manner that is both safe and secure. This is more expedient and secure, and it provides your advisors with the information they need to assist and advise you moving ahead.

7. Internet-connected payment

Connecting payment apps to your online accounting and invoicing gives consumers the ability to pay you instantly, shortens the amount of time it takes for customers to make payments, and eases the administrative strain placed on you and your team.

When is it appropriate for your organisation to employ accounting in the cloud?

Utilising the additional digital connectivity and real-time data possibilities that the cloud provides is a worthwhile investment if you want to get the most out of cloud accounting.

Because of its improved real-time data capabilities, it is an excellent choice for your company if you need quick access to information about management, key performance indicator (KPI) measurements, and extensive financial breakdowns. When it comes to building an app stack and developing a bespoke suite of business applications, there is a wide variety of options available because the majority of platforms provide an open application programming interface (API).

The following is a list of key areas in which you can utilise cloud accounting:

1. Automation can be used to lighten tasks

The ecosystem of cloud accounting enables automatic bookkeeping, cash collection, and bank reconciliation, which significantly reduces the amount of administrative work that needs to be done by your team.

2. Increasing your understanding of your financial facts

You and the rest of your management team are able to make sensible and well-informed decisions because you have fast access to real-time reporting and financial intelligence. This gives you the numbers, insights, and crucial data you need.

3. Paying VAT or GST online

Using a cloud accounting platform makes paying your taxes a great deal more expedient and straightforward. This is due to the fact that all of your transactions will be logged in real time, after which they can be easily exported into the appropriate tax return templates and electronically sent to the revenue.

4. Getting MTD-compliant

As part of its transition to digital tax accounts, the government is implementing Making Tax Digital (MTD), which mandates the use of digital record-keeping and tax returns. You are able to send returns in the needed iXBRL format and are digitally prepared with a cloud computing platform.

5. Working remotely

Imagine that you want your company to take advantage of the perks that come with remote or flexible working. If this is the case, cloud accounting gives your management team and your finance department the ability to access all of the important numbers from any location in the world where they have internet access.

Cloud Accounting Software Options

There is a lot of competition in the market for cloud accounting, and there is a wide variety of various providers to pick from. Your company's size, the type of accounting services it requires, and the degree of flexibility you require from its app ecosystem are the three primary considerations that should guide your search for cloud-based accounting software.

The following are examples of cloud providers from which to choose:

• Xero is an excellent option for small businesses who are looking for straightforward accounting in addition to comprehensive reporting as their company expands. Xero also has a big presence in the international app industry. In Australia, Xero is a professional accounting software that is also free to use. It is a safe online platform that provides you with the ability to manage your accounts from any location. In addition to this, it reveals to you how your cash flow is operating.

With the help of this programme, you are able to input bank transactions and send out invoices. As a result, you will have more time to devote to managing crucial facets of your company. In addition to this, it comes with a wonderful ecosystem that is comprised of apps and features that may help you solve any problems that are relevant to your business.

Keeping an eye on your payroll is made easier with the help of the accounting software Xero in Australia, which also enables you to electronically submit forms to the Australian Taxation Office (ATO) with just the press of a button. You will be able to monitor both your financial transactions and your tax obligations with the assistance of Xero.

• QuickBooks Online is a platform that caters specifically to the needs of small businesses. It offers all of the accounting capabilities of the traditional desktop version of QuickBooks, in addition to a fantastic app store. In Australia, the accounting software known as QuickBooks is considered to be among the best accounting software available.

It is a remote-accessible and connectable online platform that can be used in any location. This software has more than 4.5 million online subscribers and was the recipient of prestigious awards for customer service in both 2017 and 2018. It alleviates all of the concerns that you have regarding accounting and bookkeeping. As a result, your company will be able to thrive as a result of your increased availability to devote time to its operations. Because of this, it is the most effective accounting software available in Australia to medium-sized businesses.

You are able to import your previous data from competing platforms such as Xero and MYOB using this feature. In addition, it includes integrations with services such as Paybooks Payroll Cloud Application, Primaseller, TSheets Time Tracking, Greenback, Shopify, and others.

• Both Sage 50cloud and Sage 200cloud provide users with the flexibility of cloud computing in addition to the capabilities of traditional desktop accounting software.

• KashFlow is an excellent option for smaller companies who are looking for a user-friendly platform that is capable of fulfilling their needs. There is a complete set of the fundamentals, but there are less alternatives for apps.

• Zoho Books — In contrast to many other suppliers of cloud accounting services, Zoho offers a variety of other business applications that may be integrated with Zoho Books. In addition to that, it provides some interfaces to software developed by other companies. As a consequence of this, Zoho Books is the most effective accounting software available, as it enables you to construct and manage your company with ease.

Accounting is a tedious process, but with the help of this online application, you won't have to worry about it anymore. Instead, you can concentrate on the more interesting elements of running your own company. It takes care of your workflow and finances, calculates taxes like the GST (Goods and Services Tax), and assists you in filing the appropriate paperwork with the Australian Taxation Office (ATO).

It analyses your company in more than 40 different ways in order to offer you with detailed data on profit and loss, cash flow statements, Balance Sheets, sales reports classified by items and customers, payments, credit notes, and other aspects of business operations. Accounting software that is most suited for use by medium and small enterprises in Australia may be found here.

It comes pre-integrated with applications, some of which are made by Zoho, among others. Additional connectors include Stripe, Zapier, PayPal, Box, Slack, One Drive, Google Drive, and Office 365. Evernote and Dropbox are also supported.

• FreeAgent is a cloud-based accounting service designed specifically for freelancers, contractors, and small enterprises that does not include extra features or bells and whistles.

• ClearBooks is a great alternative for tiny businesses, and it even provides a free option for them to use called Micro. ClearBooks suggests that Micro is most appropriate for "new or ultra small firms." It is possible to connect to a small number of third-party applications, but not on the same scale as Xero or QuickBooks.

• QuickFile — Comparable to ClearBooks, QuickFile also provides a free option to companies that are at least a particular size.

• Exact is a company that provides a variety of financial applications, including accounting software, to both small and large organisations. These applications can include functionality that is supplementary to that of accounting. In addition, there is an app store, which allows users to add even more features.

• The Sage Business Cloud Accounting platform - Sage's cloud platform, which includes all of the business features of their desktop version, will appeal to larger enterprises due to its scalable accounting capabilities. It is possible to use third-party applications, but the addition of new Sage modules will drive up both your expenditures and your budget. Sage Business Cloud Accounting is head and shoulders above the competition when it comes to accounting software.

It is software that can be accessed online through any device, at any time, from any location. Cloud computing makes invoicing a breeze, which speeds up the payment process. Accounting software in Australia that is designed specifically with the needs of small businesses in mind. It is straightforward and uncomplicated to use, and prior accounting knowledge is not required.

It manages your payroll, finances, and taxes in addition to facilitating data entry and providing bank reconciliation and reporting functions. In addition to that, it is compatible with a variety of add-ons, including Altec, Commercebuild, Datalinx Warehouse Management, iVend Retail, Profix, SPS Commerce, and EDM Document Manager. Because of this, it satisfies all of your accounting and business needs in one convenient location.

• MYOB is one of the most important providers in Australia. It is geared towards smaller companies that are looking for an accounting solution that is easy to use and has all of the advantages offered by the cloud. Accounting software doesn't get much better than MYOB. With the help of this programme, you'll be able to shift your attention from the management of accounting books to the operations of your company.

It is software that runs in the cloud and gives you access to your accounts no matter where you are. You are able to monitor the status of your company in real time and adjust your actions accordingly. It provides you with an all-encompassing view of your cash flow, gains, and tax liability after calculating them all for you. MYOB has relationships with more than 150 different banks and other financial institutions.

Commonwealth Bank, ANZ (Australia and New Zealand Banking Group), NAB (National Australia Bank), and Westpac are a few examples of these kinds of financial institutions. In addition to this, it is compatible with over 300 other applications, including Tanda, Neto Commerce Platform, EzyCollect, ServiceM8, HR Central, and many others.

Utilising Accounting Software Shouldn't Be Difficult

It might be a hassle for owners of small businesses to use accounting software that is not offered on the cloud. It calls for a significant amount of manual data entry, which can consume an inordinate amount of your time and energy. This does not contribute anything of value and removes any enjoyment from being in business. The use of software that is hosted on the cloud might help your company save both time and money.

Concerns Regarding Traditional Methods of Accounting Software

• The data that is stored in the system is not always in the most recent version.
• The fact that it can only be used on a single computer and that data can be moved about in various ways, such as on a USB drive, makes it neither dependable nor safe.
• Because only one person has user access, it's possible that important people won't be able to see facts about customers and finances.
• Keeping backups is an expensive and time-consuming process, assuming it is even done at all.
• Upgrades are prohibitively expensive, cumbersome, and time-consuming in comparison to cloud-based accounting software, which receives updates automatically.

Why The Cloud And Accounting Software Are The Perfect Match

Software that is stored in the cloud can be accessed and used from any device as long as it has an internet connection. Small business owners can stay connected to their data and accountants by using accounting software that is hosted online. The application may communicate with a wide variety of business programmes developed by other companies. It is easy to use, scalable, and cost-effective all at the same time.

In the cloud, it is not necessary to install software or operate them like you would on a desktop computer. Instead, you sign up for a recurring monthly subscription to pay for the software.

Cloud Security Is World Class

You, as the owner of a small business, may have certain reservations about entrusting the storage of your data to a cloud service provider. On the other hand, storing data in the cloud is among the safest methods available. If you save your data on the cloud, for instance, even if your laptop is stolen, no one will be able to access it unless they know the login information for your online account. In addition, when you use software that is hosted in the cloud, your data is stored on safe servers located online rather than on your local hard disc.

Being hosted in the cloud ensures that a company's productivity will not suffer in the event of an emergency such as a fire or a natural disaster because there would be no downtime. Off-site storage ensures that none of your information will ever fall into the wrong hands. If you have access to any computer or mobile device that is linked to the internet, you will be able to get back online and continue operating normally.

In addition to this, you are able to regulate the level of access that users have to your data if you invite them to view it. Sending a USB stick with your data on it or sending an email with your files attached is a much less safe method than using this more modern alternative.

Software firms that store data in the cloud are responsible for ensuring that your personal information and that of your organisation are protected at all times. Therefore, if you utilise internet banking, for instance, you are already set to use cloud accounting.

Improve Your Productivity Thanks To Data That Is Easily Accessible In The Cloud

The benefit of using online accounting software is that it provides you the flexibility to run your business from anywhere, whether it be from your place of employment, your home, or any other location. Regardless of where you are, you can be assured that you always have the most recent information regarding the status of your company at your fingertips.

In the cloud, software updates can be generated and distributed more quickly while also being easier to do so. This eliminates the need for you to worry about installing the most recent version, and it grants you immediate access to any new features that are released. In addition, being able to run your company remotely, from any location in the world, using cloud accounting software gives you this capability. And the possibilities are practically limitless when data is fluid and easily available.

Australian Facts Regarding Cloud Accounting

The adoption of cloud computing is rapidly becoming more widespread across Australia's commercial sector. Increasing numbers of companies are searching for ways to save expenses, simplify procedures, and increase productivity by utilising cutting-edge software and platforms.

1. "Accounting software is essential to the survival of 78 percent of all businesses."

According to some statistics, over four-fifths of businesses have described accounting software as essential to their operations, and these same firms ranked the cloud-based products offered by Xero as the most effective ones available on the market. More than forty percent of respondents stated that accounting software had a direct impact on the company's expansion.

2. "16% of organisations wish to communicate only through software,"

In the not-too-distant future, some companies, albeit a relatively tiny percentage, intend to communicate with their accountants using software alone. They feel that by automating certain procedures, their accountant will have more time to devote to providing broader advising services, which will ultimately bring value to their company. More over one quarter of organisations, or 27%, have previously sought the help of accountants for business-related matters.

3. "83 percent of accountants operate their businesses online"

83 percent of Australian accountants have adopted cloud-based practise management software to keep up with the demands placed on them by clients who are knowledgeable about technology. According to information provided by Sage and made public by iTWire, 68 percent of companies assert that they optimise their services by investing in the most advanced technologies available, which may include cloud technology.

4. "50% of accountants anticipate that most of their clients will soon use the cloud,"

According to research from Smithink that was published in the Australian Financial Review, at the present time, 29% of accountants report that more than 50% of their clients utilise accounting tools that are hosted in the cloud. However, by the middle of this year, this percentage is projected to have increased to fifty percent, and twenty-four percent of accountants anticipate having at least three quarters of their clients' accounting done on the cloud by that time.

5. In the next five years, "cloud computing" will have the most influence of any technology

Many businesses in Australia believe that cloud computing will be the area of information technology that will have the most significant impact on their operations within the next five years. According to the findings of a study conducted by Microsoft Australia, respondents ranked the cloud higher than artificial intelligence, virtual reality, quantum computing, and the internet of things.