Accounting can often be considered a language in itself, like English or French. It’s a language that dates back thousands of years, with its earliest evidence traced back to the Mesopotamian civilizations. The earliest iteration of accounting was done to record goods that were traded and received. Since that era centuries ago, accounting has evolved in many ways.
One of the most significant evolutions in accounting’s history is its use of technology. Powerful computers can calculate large amounts of financial data faster than any human ever could. Traditional accounting in the modern age consisted of using software isolated to the device it was installed on. Although such a tool made the job easier, it still had weaknesses.
The next evolution of accounting came in the age of the internet.
The internet has allowed financial experts to share and store data more conveniently. More specifically, the internet has made way for the emergence of cloud accounting.
Cloud-based accounting software still has the functions of traditional software but with improved capabilities; as more people stored and interacted with more data, isolating financial assets into one device wasn’t enough. Cloud accounting primarily uses the power of the internet to keep their financial data, allowing them to access it at any given moment on virtually any device.
Cloud Accounting vs. Traditional Accounting: Their Key Differences
These technological breakthroughs have made the modern accountant’s job much less tedious, time-consuming, and inaccurate.
However, some accountants may still want to stick to the old ways of doing things. Understanding the strengths and weaknesses of both types of accounting is essential to help you know your ideal approach.
This article discusses how each approach handles the essential features of accounting tools.
1. Accessibility
If you’re a freelance accountant working on multiple accounts all by yourself, then traditional accounting software will suffice. However, it might pose certain accessibility challenges for organizations with many stakeholders.
Data storage for traditional accounting software is done locally within a licensed device. If you’re using a different computer, you cannot access the data you need. The same goes if you collaborate with a client using their computing system: They won’t be able to access the same data you see.
Meanwhile, one of the benefits of cloud computing is that it allows data access to everyone so long as they’re connected to the internet and authorized to access the account. This feature makes cloud accounting suitable for organizations where multiple individuals might need to peruse or edit accounting reports at any time or location.
The caveat of the accessibility of cloud accounting is that you’ll need a stable internet connection for it to work properly.
2. Collaboration
Freelance accountants might benefit from software-based accounting systems since they typically work alone. Accessibility issues in traditional accounting might make collaboration challenging.
Yes, the same accounting software may be downloaded into multiple computers so long as the license covers all devices. But sharing data between these computers might still involve using hard drives and other external storage devices, which can be tedious.
As for cloud accounting, all updates are done in real-time online. They automatically cover all touchpoints and connected devices; there’s no need to update each computer individually, which means everyone’s always on the same page, and no one is kept in the dark about the state of their assets.
This proves most practical now that remote work has become embedded in organizations’ work cultures and policies.
3. Safety and Security
In traditional accounting, data is stored in designated on-premise devices. The pro is that the data is immune to attacks or faulty internet, isolating and securing valuable information. However, these devices are always vulnerable to crashes, system errors, and physical damage. This is why those who still use traditional accounting store hard copies of data in secure places.
Cloud accounting, on the other hand, can eliminate those risks. Your data remains secure through remote servers and allows you to monitor who has access to the data. Once you notice any irregularities, you can quickly revoke clearance by invalidating login credentials. However, there is still the possibility of data breaches and online attacks if you aren’t careful.
4. Energy Saving
You may want to reduce energy usage to cut operational costs and minimize your carbon footprint. Whatever the specifics of your motivation, know that your choice between traditional and cloud accounting will inform whether you get to save energy.
Local hardware used for traditional accounting usually requires regular replacement, and they are notorious for their energy consumption. Meanwhile, cloud accounting doesn’t require standalone IT infrastructures or specific hardware, which means it’s less demanding energy-wise.
You can even use handheld devices for cloud accounting. So for tasks that don’t require a laptop or a desktop computer, which uses more energy, you can settle with a tablet or even a smartphone.
Lastly, cloud computing eliminates traditional paperwork, eliminating the need for backup hard copies of pertinent data.
5. Overall Costs
You’ll need a standalone IT infrastructure plus on-premise hardware for traditional accounting. On top of those, you’ll shoulder the maintenance costs, which could quickly accumulate depending on how carefully the system is used.
Meanwhile, cloud accounting eliminates the need for on-premise hardware and IT infrastructure since everything is taken care of via the cloud. After subscribing to a cloud accounting service provider, you can relax, and your cloud partner will manage all updates and maintenance.
With reduced risks of data loss and breaches, you also save on troubleshooting costs. Remember that compromised data could result in fines and other legal fees. You wouldn’t want to be at the receiving end of hacking that taints your business’s name, which is also quite costly.
Wrapping Up
Accounting is not an easy job and requires a specialized skill set. Thanks to modern technology, accountants simplify and streamline the processes involved in their work. Whether through traditional or cloud accounting, they now enjoy the privilege of fast and accurate record-keeping.
The ideal accounting approach to take will depend on your goals. If you’re highly intent on keeping your financial data as secure as possible, traditional accounting can help you since it keeps your data offline. But if you plan on collaborating with others or need to access financial data in several locations, cloud accounting would be your best bet.
About the Guest Author
Luigi Dimayuga
Luigi is a marketer and a content writer for CloudCfo – the leading online accounting firm for startups & SMEs in the Philippines. In his spare time he enjoys reading books and exploring business ideas!