Cloud vs. Desktop Accounting: What Are the Differences?
Cloud and desktop accounting software products both help businesses handle basic financial processes, such as recording transactions, managing accounts payable and receivable, handling taxes and invoicing. But there are key differences between cloud and desktop accounting software, and those differences have big implications for businesses. They range from remote access capabilities, administration and security to financial reporting, compliance and support for more complex business structures.
What Is Cloud Accounting?
Cloud accounting software is hosted by a software vendor, and companies access the software and their financial data over the internet using a browser. They don’t need to buy, install and manage software on their own computers. Instead, they pay to use the software on a subscription basis.
Key advantages of cloud accounting software include the ability to access financial data from anywhere, using any capable device, as well as automatic data backups. Cloud-based systems typically also integrate more easily with other business applications. This provides a real-time view of information across business operations, including the supply chain, inventory and manufacturing, which facilitates faster, more-informed decision-making.
What Is Desktop Accounting?
With desktop accounting software, the accounting software and financial data reside on each person’s desktop or laptop computer. Companies typically have to buy a software license up front and pay for periodic new releases. They need to manually install the software and back up the company’s data. Finance professionals can only access financial data from the computer on which the software is installed, so they need to have that computer with them in order to access the system from home or while traveling.
Desktop accounting software handles basic accounting functions but lacks capabilities that many growing companies need. It can be difficult to manage version control among large teams, for example. Limited and inflexible reporting means finance professionals often need to manually export data to spreadsheets for analysis. This is slow and error-prone, and it hinders the company’s ability to quickly understand and respond to changes in business conditions.
- Accessibility
Unlike desktop accounting software, authorized employees can access cloud-based software from any location and on any device. This is vital for companies with distributed, remote or mobile workforces, and for companies with a hybrid model in which employees work from home some of the time.
- Automatic updates
With premier cloud accounting software, upgrades are immediately and automatically available to every user. This ensures businesses always have the latest functionality, including changes to comply with new accounting and tax rules. With desktop accounting, companies often delay upgrading because of the cost and effort required.
- Less administration
Because there’s no need to spend time installing and updating software or backing up data, cloud accounting helps the finance team focus all of their efforts on accounting and financial management, not tedious and time-consuming administration.
- Integration with other applications
Desktop software typically wasn’t designed to integrate with other business applications, so businesses can run into issues when attempting to share data across the business. Leading cloud solutions, however, can integrate via APIs, other apps or be offered as a suite with a broad set of cloud-based business applications that handle almost every aspect of the business, from payroll and HR to warehouse management, providing a more comprehensive, real-time view of the business and helping companies better forecast and track revenue, profit and cash flow.
- Automation results in greater accuracy with fewer errors
Cloud accounting software automates many processes, including reporting, data entry and reconciliation. With desktop software, employees must perform more of these steps manually, including entering and exporting data. Manual processes are inherently more prone to human error, in addition to being less efficient. By automating these time-consuming processes, companies can spend more time focusing on managing business growth. As specialist wine kegging and logistics company Free Flow Wines puts it, “We can focus on what we do best in kegging premium wine rather than manual work with orders, inventory and accounting.”
- Customer support
Cloud vendors rely on customers continuing to subscribe to their services, which means they are highly motivated to keep customers happy. Leading suppliers have a reputation for good support, and the fact that they run the software centrally can help them solve technical issues. Some cloud suppliers have customer success teams dedicated to helping businesses make the most of their software.
- Better security
Cloud vendors have deep in-house cybersecurity resources and much more extensive security expertise than most businesses. As a result, they are better positioned to secure information against hacking or other unauthorized access. Leading cloud software encrypts business data and provides role-based access controls that ensure each user only accesses accounting data they are allowed to see. The company’s financial data is stored in the cloud, so if a laptop is lost or stolen, thieves can’t gain access to the data unless they have the employee’s login information. In contrast, desktop software often has more limited security controls, and if a laptop is stolen, thieves can potentially gain access to company data stored on the system.
- Reliable backups
Entrusting backups to individual employees is a risky strategy, especially for vital financial data. Cloud accounting vendors automatically maintain backups of companies’ data on their secure servers, providing businesses with peace of mind that their critical information is safe.
- Collaboration
Cloud accounting software makes collaboration easier because everyone has real-time access to a single version of the data. That eliminates the need to manage multiple versions of the same file or copy data onto USB drives for sharing. Distributed teams can more easily work together on projects, accelerate financial processes and share data with external parties.
- Flexible reporting
Limited, inflexible reporting options in desktop software mean that many companies have to export data into spreadsheets to produce custom reports and analysis — a labor-intensive and error-prone process. Cloud accounting software offers customizable, real-time reporting, helping companies quickly analyze data in new ways that reflect their changing business needs. This helps growing companies rapidly adapt and respond to fast-moving markets.
- Multi-entity and international accounting
Desktop accounting software is designed to handle accounting for a single business entity. Leading cloud accounting software handles more complex multi-entity, multi-currency businesses, so many companies switch from desktop to cloud accounting when they expand internationally or acquire other companies.
- Compliance
Comprehensive cloud accounting software helps companies comply with complex regulatory requirements and accounting standards, including the recently published ASC 606 revenue recognition standard. Leading cloud software can automatically generate financial reports to help comply with both the GAAP accounting standards used in the United States and IFRS standards used in other countries. When the cloud software supplier adds support for new standards, regulations or taxation requirements, the features are available to businesses as part of their subscription.
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