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Cloud vs Traditional System of Accounting Assignment Help
This report highlights the various strength and weaknesses of the traditional accounting system as well as cloud based accounting system. The analysis has been done in order to identify the appropriateness of the cloud-based accounting system for the companies that of different size nature and are involved in varied business operations. The report has been prepared to analyze the current trend among business organizations to install a cloud-based accounting system leaving behind the traditional desktop based accounting software packages .As per the “International Data Corporation” report the cloud accounting software market has reached to $48.8 billion in revenues in 2014, and is expected to continue to grow at a compound annual growth rate of 18.8% up to 2019. The report also contains few recommendations regarding the companies that will be most benefitted from the installation of the cloud accounting system.
In order to keep pace with a rapidly evolving world company, all the companies are looking for maintenance free accounting system that can offer instant data processing and instant communication and a high accuracy in report generation at an economic price.Cloud computing system is an answer to all those above requirements and that is why a large number of companies are showing their interest to move to cloud computing leaving behind the traditional accounting system. This report contains a brief review of possible benefit and advantages that a company may get from moving in to cloud computing.
Cloud-basedaccounting system: Cloud accounting software is similar to traditional, on-premises, or self-install accounting software, only the accounting software is hosted on remote servers, similar to the SaaS (Software as a Service) business model. Data is sent into "the cloud," where it is processed and returned to the user. All application functions are performed off-site, not on the user's desktop.
The traditionalaccounting system:Traditional Costing & Accounting. ... The traditional costing system is an accounting method that is used to predict profits. This method uses cause-and-effect techniques and takes into account direct and indirect costs and expenses in a business.
The parameters for which acloud-based accounting system and a traditional accounting systemdiffers
Traditional accounting system
Ease of access
Ease of accounting is one of the major advantages of cloud accounting system. The business owners and their employees will be easily accessing their financial data from anywhere from the world from any time without downloading and storing anything on their desktop
However, the traditional accounting system is not able to provide this kind of mobility. Here bookkeeping cannot be taken care off on the go and therefore business owners have to stick in one location to take care of their accounting activities. This makes them lose their opportunity to travel and acquire more clients(Low, Chen & Wu,2011).
In terms of price, cloud accounting is much cheaper compared to thetraditional accounting system. Unlike the desktop accounting package here the user do not have to make any upfront payment for all the costs rather the payments for costs are to be made either monthly or weekly
Under traditional desktop accounting package, the installer have to pay for every other cost that is needed for installation and maintenance of the system
Under cloud accounting system the service vendor is responsible for doing the system update and the relevant cost is included within the monthly or weekly fee that is paid by the user
The traditional desktop accounting package needs a system update with every change in tax payment rules and other legislation.
cash flow management
The cloud accounting service provider takes care of all the maintenance jobs that include maintenance, version up-gradation, system administration and server failures and some others and all these services are supplied for a package monthly or weekly fee that helps an organization in better cash flow management
In thecase oftraditional desktop accounting, an organization has to take care of each maintenance operation and also has to make relevant expenses.Thus it often becomes difficult for an organization to maintain and run such an accounting system without substantial cash expenditure capability
Real-time information sharing
Most cloud accounting software’s owns financial dashboard that offers latest financial information to the business and this helps a business to respond to the dynamic economic changes very quickly as the financial information are at the fingertips of the users
No such facility is available under traditional desktop accounting and therefore the user of this system do not be able to respond that quickly(Dinh et al.2013).
The users generally hire the service for a cloud basedaccounting system and therefore the service vendor is the license holder of the system
traditional desktop accountingsoftware is bought and installed by the user who is responsible for the whole maintenance also and therefore is the holder of alicense
For cloud computing, the service provider who owns the license of the system determines the settings and location of the system
For the traditional accounting software, the users who install the system is the owner of the license, therefore, determines the system settings and location
Data Security & Data Back Up
The cloud accounting software offers data security to the users whose standard comply with the PCI(Payment Card Industry Data Security Standard) which is very expensive for a firm to achieve. The system also offers data recovery service via software-as-a-service technique.
Traditional accounting software requires to install their own hard drive for data storage and recovery and the user also additionally has installed their own security mechanism
The cloud accounting system is allocated among multiple users can share system through individual private channels
Here the accounting system is only shared by the license holders
Risks or limitations in adopting a cloud-based accounting system
Lack of full control over data:
In cloud computing, the user has to store their sensitive data at a remote server that can be located anywhere within the world. The server can be in UK, Asia or America or any other country and therefore government of the country or any other entity can go through those sensitive data if government of a particular country is authorized to look at to any data that is stored within the geographical location of the country as per the rule of the land (Marston et al.2011).
Limited availability of applications:
The service vendor can only provide an operating system, infrastructure and the updates that will be required from time to time. Accounting specifications often differ from one organization to another.The specific applications that are required for handling the accounting needs of an organization often cannot be supplied by a cloud vendor and sometimes these applications not even compatible with the cloud accounting system.
Non-availability of Desktop Data Saving:
Most cloud accounting softwaredoes not offer data saving facility on theuserdesktop. As a result of the users often find it difficult to take a print-out or to export data somewhere else without going online for accessing the data.
Size and type of businesses that will be benefitted from installation of cloud accounting system
Small and medium enterprises, companies that are operating with limited capital will be benefitted in general form the cloud-based accounting system as the system involves minimum capital expenditure along with functional optimality.
The companies that are involved in complicated report making should be benefitted from the use of cloud accounting software as the system is capable enough to simplify the challenging task of report generation and also add value to the data that is being retrieved and stored (Krutz & Vines, 2010).
The companies that are working under capital restrictions and are not able to hire expert employees should go for cloud accounting software that will automate some of the stages of report making and will dramatically minimize theerror rate to ensure a transparent and visible recordkeeping.
Companies that need 24/7 access to their data by the employees and need to communicate with a large number of remote employees should go for cloud computing
Thus it can be recommended that the companies that are small in size and has limited capital and want to use an accounting system that is free of maintenance and offer instant access and remote communication should go for a cloud-based accounting system.
Krutz, R. L., & Vines, R. D. (2010). Cloud security: A comprehensive guide to secure cloud computing. Wiley Publishing.
Marston, S., Li, Z., Bandyopadhyay, S., Zhang, J., & Ghalsasi, A. (2011). Cloud computing—The business perspective. Decision support systems, 51(1), 176-189.
Dinh, H. T., Lee, C., Niyato, D., & Wang, P. (2013). A survey of mobile cloud computing: architecture, applications, and approaches. Wireless communications and mobile computing, 13(18), 1587-1611.
Low, C., Chen, Y., & Wu, M. (2011). Understanding the determinants of cloud computing adoption. Industrial management & data systems, 111(7), 1006-1023.