Cloud Accounting Software: How It Works, Benefits and Security

Accounting software has become a necessity for today’s accountants. After all, the tool automates and simplifies several mundane and complicated tasks. In fact, accounting software is more essential for small business owners who can’t afford to hire an accountant. Today’s accounting tools are so simple that they can be operated by a person with little to no accounting knowledge. However, it is important to invest in the right accounting software in this ever-changing digital world. For example, you can switch to a cloud-based accounting tool if you are looking for more flexibility and ease of access. In cloud technology, users access software applications remotely through the Internet.

Cloud Accounting Software: How It Works, Benefits and Security

Cloud computing accounting software, broadly speaking, is an online tool. You need the Internet connection and login credentials to access the tool. Technically speaking, the cloud accounting tool is hosted on remote servers. It means that all functions are performed off-site, not on your desktop. Since the software is provided over the Internet, you don’t need to install or maintain on your desktop computers. All you need to visit the page of the accounting software and feed your credentials to get started.

This way, you can access your accounting data from anywhere, anytime. Plus, most online accounting tools come with data backup and disaster recovery facilities. A cloud accounting tool is just like your traditional, desktop-based software with the difference that they are hosted on a remote server or the Internet. Their common features include managing and updating the general ledger, payroll, recording modules, and payment received and paid.

How Cloud Accounting Software Works

Cloud-based accounting software is basically a “Software as a Service” or SaaS. It means that software doesn’t need to be installed on your PC. If you wanted to use a program like Adobe Photoshop, for example, you would need to install it on your computer through installation disc, file or official methods. But that’s not a case with cloud accounting software.

Cloud accounting software, cloud accounting, or online accounting offers the same functionality as a desktop accounting tool, but move the entire process to the remote servers (clouds).

Cloud Accounting Software: How It Works, Benefits and Security

Understanding the Benefits of Cloud-Based Accounting Software

Cloud-based accounting software can help organized all of your accounting processes as it ensures collaboration and ease of access and scalability.

Here’s how…

No Installation or Maintenance Required:

Given that cloud accounting tools are hosted online, there is no need to purchase and install software directly on your computer. On the other hand, offline or traditional accounting tools are required to be installed on all of the computers in your accounting departments. This is quite tedious and cumbersome. Moreover, you need to update the same from time to time. But that’s not the case with online accounting software.

With online accounting software, all you need to log into the account over an active Internet connection. Moreover, cloud accounting tools let employees in other departments or offices access the same data and the same version of the software.

Effective Tech Support:

Cloud-based accounting software has efficient tech support. This is because they are overlooked by an active team of tech support 24/7. From phone, chat and forum support, there are many ways to contact the tech support of the software company.

Real-Time Reporting:

Cloud accounting also lets you get real-time reporting and visibility with greater collaboration. Instead of going through historical reports, you have a quick overview of the company’s current financial position. This real-time overview is important when monitoring your cash position, future expenses and when making critical financial decisions.

Live Bank Feeds:

Many cloud accounting services provide live feeds to your bank accounts, enabling you to link your banking with your accounting tool. With this feature, there is no need to manually key-in each bank statement or uploading a file that you have downloaded from your banking portal, a live feed fetches your bank data straight through into your accounts. This enhances bank reconciliation and gives you the more precise status of your balance.


Every time a business grows, they need to scale up their infrastructure to match up to their growth. And software is no exception. They need software licenses and maintenance as well as new licenses and fees for systems management, database and other software. Besides, the company also might require making expensive capital purchases of new hardware, such as software. With cloud solutions, businesses are not bound with permanent, expensive equipment and licenses when they are required to scale up your infrastructure.

For example, you can upgrade your online accounting plan from basic to premium or other plans that have more features to complement your business growth.


Cloud accounting tool is stored and processed over a remote server, minimizing the need to buying new hardware like HDD to cover the storage. With your desktop-based software, you are required to maintain your servers or buying new servers to increase your storage capacity.

Automating Everything:

Like your traditional accounting tool, online accounting software enables automatic workflow which saves you time and hassles in the long run. For example, a vendor’s data can be entered into the tool and set up a workflow that automatically pays that vendor when due data comes each month. Plus, invoices can be generated and send to your customers as soon as their info is feed into the system.

Simplifying Collaboration:

With cloud-based accounting software, you can say goodbye to the compilation of financial reports for your accountant. This is because all of your financial data is processed over the Internet. You can access it from anywhere and can set up access for your accountant so they can log into the tool. Besides, you can also control the amount of access to be provided to your staff. For example, if an individual is processing your payroll, you can give access to the payroll section of the software without letting them have access to other parts like your bank accounts.

Is Cloud-Based Accounting Software Secure?

A cloud-based accounting tool gets an upper hand when it comes to accessibility, scalability and collaboration. However, security is somehow a key concern with cloud accounting than a desktop tool, as it can be accessed from anywhere at any time. But it doesn’t mean that cloud-based accounting software is not safe just because they are hosted over the cloud. Today’s online accounting software is protected by extra security layers such as two-factor authentication, authorized access and backup.

Keep in mind that the risk is even associated with your traditional tools. What if you lose your laptop being installed with an accounting tool that contains all financial data? The computers in your office are not immune from the risk, especially if you are not taking data backups.

For example, keeping data on your computers leads to two problems.

The first one is that there’s no redundancy in local storage. Data stored on a single computer is prone to everything from hacking to flooding to a coffee that spills all over the PC. If you are taking your laptop to your local cafe every day, you are making it vulnerable to theft, random falls and spills. And it is even worse if your accounting data is stored on your laptop.

Secondly, local security is not strong. Data stored on your PC is prone to ransom ware and viruses. Both of these concerns are less troublesome when you choose a cloud accounting tool. Any cloud accounting tool won’t only make it password protected, but also give you tons of backups. In the case of cloud-based accounting software, you don’t need to worry about your accounting data if your device is damaged or stolen as everything is stored and processed online. The only things to care about are your password, access and the security measures associated with your online tool.

How Cloud-Based Accounting Software Ensures Safety

Today’s accounting software comes with extra layers of security such as two-factor authentication, backup and authorized access. Big accounting software companies understand the threat and work over their tools accordingly. Here is how cloud-based accounting software is safe from the safety viewpoint:

Multiple Data Centers:

What if your workplace is affected by natural disasters, burglary or fire breakout? All these scenarios lead to data loss as your machines and computers will be damaged in such incidents. With a cloud-based accounting tool, you have peace of mind that your software is stored away from your premises. Top accounting software companies have multiple data centers in various undisclosed sites. It means that your data will be safe with other locations if the incident occurs at one site.

XERO does real-time data replication between its geographically diverse, protected data centers. QuickBooks Online’s data centers are located at different sites, to reduce the risk that a natural disaster in one site might kill the chances of users to access their data. Apart from that, the data centers of these companies are equipped with round the clock surveillance, video monitoring, fire and flood protection and security guards.

Protection from Real World Threats:

If someone breaks into your workplace and steals your computer, you don’t have to bother about them getting access to all those sensitive documents at the same time. The data is protected as they were never stored on the physical HDD of your computer in the first place. They’re also safe from a fire, from an HDD failure, from data loss and other types of catastrophe you needed to worry about in the past. This way, cloud-based accounting software ensures protection against such real-world threats. Opting for cloud-based accounting software is even more essential if you work in an unsafe area or your workplace is located in the area being prone to natural disasters like floods and earthquakes.

Data backup:

This is another benefit of a cloud accounting tool from a security viewpoint. It creates copies of your data so that you can get it in case of deletion or losing it at all. Many accounting tools let you retrieve up-to-date copies of your data files.


Data encryptions convert data into another form, or code so that only people with authorized access or password can read it. It is the simplest and most important way to protect information. And good thing is that most cloud-based accounting tools utilize this technique while processing and sending data.

Authorized Access:

Cloud-based accounting tools let you control the access of your software. You can determine who can see and access what. For example, you can let your data entry team feed the data without knowing your bank accounts. Or you can restrict the access to your financial data to some authorized personnel only.

Data Security Measures:

Reputable online accounting tool companies have robust cybersecurity systems in place to safeguard your data, from virus detection and firewall to two-factor authentications.

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