Cloud Accounting vs Traditional Accounting

Cloud Accounting Vs. Traditional Accounting: Key Differences

According to Statista, the cloud technology market is projected to expand to $138 billion US dollars by 2025, compared to the $31 billion US dollars expected for traditional accounting.

The stats are unsurprising as businesses worldwide increasingly adopt cloud accounting due to its many benefits over traditional accounting. This blog post aims to identify the top 10 key differences between cloud accounting and traditional accounting. (#4 being the pivotal factor that has completely changed the financial management landscape!) Let’s dive in!

Quick Summary

✅ Finances are managed differently using new cloud technology compared to the old-fashioned way.

✅ The 10 key differences between cloud and traditional accounting demonstrate how each method carries out financial processes.

✅ While traditional accounting relies on manual processes and physical documentation, cloud accounting offers accessibility, real-time data updates, scalability, and integration.

✅ Prominent cloud accounting software like FreshBooks and QuickBooks have user-friendly interfaces and comprehensive features, tailored particularly for small businesses.

Understanding Traditional Accounting

Traditional accounting relies heavily on manual processes and physical documentation. For instance, Anderson & Co. is a small manufacturing firm that still clings to traditional accounting traditions! The company has invested in a high-end computer to store financial data in its desktop software.

One of the main problems companies like Anderson & Co., who use traditional accounting, face is the lack of access to their financial data anytime, anywhere, using any internet connection. The staff of such firms are forced to rely on outdated information, making it nearly impossible to provide accurate insights to the company’s decision-makers.

And yet, the challenges of traditional accounting do not end here. Displacing discrepancies between the company’s physical documents and Excel sheets can be difficult. As companies grow, so does the strain on their antiquated systems. The prospect of scaling up their infrastructure is difficult due to the high costs, time, and complexity of upgrading their software.

What is Cloud Accounting?

Cloud accounting is a SaaS (software-as-a-service solution) that marks a big shift in financial management. It fundamentally changes how businesses handle their financial processes.

Accessibility is a cornerstone of cloud accounting. Unlike traditional methods, where data is stored locally, cloud accounting involves using accounting software where software and data are stored in the cloud. This flexibility liberates businesses from location constraints and physical server dependencies, offering convenience.

Real-time data management is another critical aspect. With cloud accounting, financial data is continuously updated on remote servers, ensuring that every transaction or data entry instantly reflects across the system. This real-time capability empowers businesses to promptly make informed decisions, respond agilely to market changes, and adjust strategies.

Scalability is inherent to cloud accounting systems, enabling businesses to adjust their accounting capabilities effortlessly as needs evolve. Whether experiencing growth spurts or seasonal fluctuations, cloud accounting systems can scale up or down without the hassle of costly infrastructure upgrades or software installations.

Integration and automation are also key features. Cloud accounting platforms seamlessly integrate with other business systems like CRM software or inventory management systems, automating department data flow. Automation features such as automatic bank feeds and recurring transaction templates streamline tasks, enhancing operational efficiency.

10 Key Differences Between Cloud Accounting and Traditional Accounting

10 Key Differences Between Cloud Accounting & Traditional Accounting

Here are the 10 key differences between cloud accounting and traditional accounting. (Not many people know about #10)

1- Data Storage

Traditional accounting data is stored either physically in the company’s premises or on-premises desktop computer systems. Typically, such companies must invest in a high-end data storage system. Also, this setup risks data being lost due to hardware failures, natural disasters, etc.

Conversely, cloud accounting employs off-site servers managed by third-party entities. These providers enforce stringent security protocols, data encryption, and routine backups to safeguard financial information. Cloud accounting minimizes the risks linked with storing data physically.

2- Security

Cloud accounting providers typically offer advanced security measures, such as encryption and regular backups, to protect sensitive financial information, whereas traditional accounting may be more susceptible to risks like physical theft or damage.

3- Accessibility and Collaboration

Traditional accounting does not support collaboration. It enables only one person to access the file and work on it at a time, making it difficult for the team to access the real-time financial data as soon as possible.

Cloud accounting supports remote work by enabling the team to collaborate in real-time through features like multi-user access, document sharing, etc. For instance, cloud accounting will facilitate your staff’s collaborative work on financial reports, improving efficiency.

4- Real-time Data Updates and Reporting

One of the primary attractions of cloud accounting for businesses is the ability to receive real-time updates on their data. Let’s say a colleague on a business trip to Dubai can effortlessly find a company document via the online systems. He won’t have to contact his co-workers back at the office in the US to find the file and email it to him.

Not every team member can access the entire company’s data. With cloud accounting, you can limit your team’s access to your data. Team members will only have access to the parts of the data that they require. For example, staff members who only need to file their expenses can have access to that.

5- Scalability

Cloud-based accounting software like QuickBooks and Xero allows firms to choose according to their business growth. If your business is growing and needs more storage space to store its records or add more team members, then you can simply opt for an upgraded plan. This is unlike traditional accounting, where growing firms may have to invest in a more high-end system to store large amounts of data.

6- Cost Efficiency

Cloud computing provides ‘Software as a Service.’ Companies do not have to spend money on licensing software or buying packages to install on individual computers like in traditional accounting. Instead, cloud accounting usually involves a subscription-based pricing model with lower upfront costs.

For instance, QuickBooks offers businesses three plans to choose from. One plan is suitable for startups, the other for SMEs, and the third for companies that are scaling. Unlike in traditional accounting, there is no need for costly infrastructure upgrades that may require significant investment in hardware and software.

7- Integration

Cloud-based accounting systems are crafted for effortless integration with many third-party applications and business platforms. This integration prowess empowers enterprises to optimize their workflows and boost operational efficiency significantly. For instance, cloud accounting seamlessly merges with CRM software, aligning financial data with customer insights for a comprehensive view of interactions and transactions.

Similarly, integration with inventory management systems facilitates precise inventory levels, sales, and expense tracking. Organizations can realize heightened automation, data precision, and overall productivity by harmonizing cloud accounting with diverse business applications.

8- Automation

Cloud accounting eliminates service interruptions caused by traditional IT issues. For example, with cloud computing, you do not have to download updates and fix system errors like in traditional accounting, thus giving you a competitive edge.

There are handy add-on apps in cloud computing that allow you to process receipts and invoices easily. For instance, Zoho Books integrates with several add-on apps such as Zoho Invoice and Zoho Expense for receipt scanning and invoice processing, offering users a comprehensive solution for financial management.

Einstein GPT

Salesforce CEO Marc Benioff recently discussed Einstein GPT co-pilot technology here.

Einstein GPT is a part of the AI Cloud and one of the many examples of automation advancement. Companies use it to create personalized content to improve engagement with their customers. For example, Gucci uses Einstein to converse with customers based on their personal data.

9. Disaster Recovery

If you use cloud computing, your documents will be stored safely in the cloud in case of disaster on your office premises. Your team can conveniently access your documents from anywhere with an internet connection, ensuring business continuity and seamless business operations without interruptions.

10. Technical Support

Many cloud accounting providers provide technical support online 24/7. Users do not have to travel anywhere to fix any issue they may have with the software. There are technical staff to guide them via chat or phone calls.

It is not easy to fix issues when using traditional accounting software, and the technical staff may not respond promptly to problems.

Cloud accounting offers many advantages to business owners across the US. However, it doesn’t come without cons. Read here to learn more about the pros and cons of cloud accounting.

Best Cloud Accounting Software- Brief Overview

When it comes to selecting the best cloud accounting software, opinions may vary as much as they do with car brands. Just as some swear by Toyota for its reliability, each business owner has their own preference based on their unique needs and experiences.

However, despite the many options available, certain cloud accounting software stands out for its exceptional features and user-friendly interfaces. Let’s explore some of the top contenders in cloud accounting software and learn what sets them apart from the competition.


FreshBooks excels in streamlining invoicing processes, making it effortless to create and send professional-looking invoices to clients. Its user-friendly interface and customizable templates ensure businesses can easily tailor invoices to their branding and preferences.

Integrating online payments is a significant advantage. Whether your business model revolves around offering services or product manufacturing, FreshBooks is a good choice for SMEs.


Quickbooks provides a great service for a monthly fee. You can use it to pay bills, create invoices, track revenue, or do anything else that you would expect to do on desktop software.

One of the things we love about it is the optional payroll feature, which integrates greatly with the accounting functions. This is very useful for companies with many employees.


Invoicera is great for dropping expenses and using it to send invoices to customers. The cloud software also provides good reporting filters for small businesses.

Wave Accounting

Wave is a free cloud-hosted software that uses double-entry accounting. This indicates that you can save more than when using other cloud accounting software. Wave offers automated reminders for past due invoices, unlimited bank and credit card connections, and sets up recurring billing for repeat customers. It is best for freelancers and solopreneurs.

One of Wave’s cons is that there is currently no mileage tracking, and it is impossible to export from QuickBooks. However, it does have other data exports.

Frequently Asked Questions (FAQs) About Cloud Accounting

Q1: What is cloud accounting, and how does it differ from traditional accounting?

A: Cloud accounting is a method of accounting that utilizes internet-based software to store financial data and perform accounting functions. It allows users to access their accounting records from any device with an internet connection, providing flexibility and convenience. Some popular cloud accounting software include QuickBooks Online, Xero, and FreshBooks.

Cloud accounting offers greater flexibility, accessibility, and collaboration than traditional accounting methods. Thus making it an attractive option for many businesses.

Q2: What are the advantages of using cloud accounting systems?

Cloud accounting offers several advantages for business owners:

  • Cost-effectiveness: Cloud accounting provides affordable financial assistance for small businesses by allowing access to remote professionals and off-shore accounting services at reasonable rates, eliminating the need for in-house accountants and associated overhead costs.
  • Airtight security and data integrity: Cloud accounting platforms feature state-of-the-art security measures such as data encryption, multi-factor authentication, and strict access control, making it difficult for tampering or fraud to go unnoticed. The software also offers ample data storage capacity, promoting paperless practices and ensuring data integrity.
  • Breaking down business silos: Cloud accounting can be integrated into a business’s ERP system, facilitating collaboration among different departments and boosting productivity by breaking down silos between accounting and other functions.
  • Sustainability and a green workplace: Cloud accounting supports sustainability efforts by enabling remote work and paperless practices, reducing resource consumption, commuting, and power usage. This aligns with the growing customer preference for environmentally conscious businesses and contributes to saving the planet.

Q3: Are there any disadvantages to adopting cloud accounting?

A: Challenges facing cloud accounting in 2024 include:

  • Data security concerns: Despite robust security measures, there is a lingering distrust in cloud-based data security, particularly among younger generations. Building trust and addressing these concerns is essential for the wider adoption of cloud accounting.
  • Over-reliance on technology: Some individuals are skeptical of technology’s increasing presence in traditionally manual sectors like accounting. Concerns arise regarding dependency on technology and the potential consequences if systems fail, such as during internet outages. Cloud accounting must demonstrate reliability to alleviate these concerns and gain broader acceptance.

Q4: Is traditional accounting still relevant in the era of cloud technology?

While cloud accounting is becoming increasingly popular across industries, traditional accounting methods are used in many sectors, often due to regulatory requirements, industry norms, or specific organizational preferences.

For example, many manufacturing companies use traditional accounting methods due to the complexity of their operations and the need for precise cost accounting.

Q5: Can I migrate my existing accounting data to a cloud-based system?

A: Yes. You can migrate your accounting data to a cloud-based system. Most cloud accounting software providers offer tools and services to facilitate migration. Here are some general steps to migrate your accounting data to a cloud-based system:

  1. Choose a cloud accounting software: Research and select a cloud-based accounting software provider that best suits your business needs and requirements. Popular options include QuickBooks Online, Xero, and FreshBooks.
  2. Export your data: Export your existing accounting data from your current system into a compatible format. Most cloud accounting software providers support common file formats like CSV (Comma-Separated Values) or Excel spreadsheets for data import.
  3. Clean and organize your data: Before importing your data into the cloud accounting software, it’s essential to clean and organize it to ensure accuracy and consistency. Remove any duplicate or outdated entries and verify the integrity of your data.
  4. Import your data: Use the cloud accounting software’s import functionality to upload your cleaned and organized data into the system. Follow the software’s data mapping and matching instructions to ensure that your data is imported correctly.
  5. Verify and reconcile your data: Once imported into the cloud accounting software, verify and reconcile it to ensure that all transactions and balances are accurate. Compare your imported data with your original records to identify any discrepancies.
  6. Set up additional features: Use the features offered by cloud accounting software, such as bank feeds, invoicing, and reporting, to optimize your accounting processes and workflows.
  7. Train your team: Provide training and support to your team members to familiarize them with the new cloud accounting system and its features. Encourage them to explore and leverage the software’s capabilities to streamline their tasks.

Q6: When should you switch from traditional accounting to cloud accounting?

A: You should switch to cloud accounting if you find yourself grappling with the efficient management of your finances, including even the simplest accounting tasks. This is likely a signal to consider moving away from Excel and outdated desktop software.