Nearly 45 years ago, technology vendors launched the first accounting software, forever changing the way accountants do their jobs. Systems that ran on computers replaced paper ledgers and the basic tools that helped accountants crunch the numbers.
With the invention and evolution of cloud-based accounting systems, accounting software has taken another big leap forward. Similar to other cloud software, these solutions offered businesses breakthrough flexibility while reducing capital expenditures and maximizing human resources.
Cloud accounting offers distinct advantages over previous approaches to this critical business function, which explains why it has become so widely adopted.
What is Cloud Accounting?
Cloud accounting is the performance of basic accounting tasks such as managing and closing the books using software that resides in the cloud, often delivered in an as-a-service model. Employees or external accountants can manage accounts payable, accounts receivable, general ledger and more within the application. Like other cloud-based systems, cloud accounting software runs on a cloud provider's platform rather than on a local hard drive or server. Users access the tools they need over the Internet, meaning employees or outside accountants don't have to be in a specific location to understand the company's financial situation.
How Cloud Accounting Works
With cloud accounting, accountants, controllers, CFOs and other stakeholders receive login credentials for the system and access it through a web browser, whether on a laptop, smartphone or tablet. The vendor may also offer a mobile app to enhance the user experience on phones and tablets.
The software is usually integrated with the company's bank accounts so that all transactions are automatically posted to the correct digital general ledger. Users often have a home dashboard that displays the financial information most relevant to their tasks, such as available cash, invoices due in the next five days or past-due payments from customers. All figures are updated immediately as the software receives new information, and users can drill down into the data for additional detail.
Accounting is one of the most important components of an enterprise resource planning (ERP) system. An ERP platform combines essential business functions such as accounting, financial planning and budgeting, inventory and order management, human resources (HR), customer relationship management (CRM) and more into one central database. This database connects modules to manage various aspects of the business, supporting cross-functional processes, many of which need to be linked to accounting. Payroll, purchase orders, and the value of inventory, for example, all need to be recorded in the accounting system as they occur.
When should a company use cloud accounting?
Considering the great benefits of cloud accounting software Malaysia and the lower upfront costs, many newer businesses are opting for a cloud accounting solution from the start. Even entry-level accounting systems now offer cloud versions and can push clients in that direction.
Finance and accounting are the foundation for all businesses - they need a way to monitor transactions and assess their financial situation at all times. Without sound financial practices, a business will not survive for long and risks non-compliance with important financial and tax regulations. In the early stages, a business may use spreadsheets or other manual systems to manage its general ledger and other accounts. However, this approach is error-prone and cumbersome, and often quickly proves unsustainable.
A cloud-based accounting system solves all of these problems. There is software for all types of businesses, from sole proprietorships to multinationals, making it a logical option for almost any company and industry.