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Cloud Accounting Hides What is Really Happening Behind the Scenes

As I have written before, cloud-based accounting is a system. You must have a systems mindset to manage it.

Working with cloud-based accounting software is like turning on a firehose of data.

Bank feeds. Credit card feeds. Shopify orders. Document feeds. Plooto feeds (do not worry I will explain!)

The power of cloud-based accounting is this – data from multiple sources can feed into your accounting software.

Why is that good?

It saves your team time. Accounting becomes dynamic, happening in real-time. No clerks entering debits and credits transaction by transaction at discrete times during the month.

And herein lies a problem my friends. Two problems to be precise.

With cloud-based accounting, documents flow into your software without human intervention. Hundreds, thousands if you are a bigger company.

If those systems are not managed or understood a big mess can get created! It is the old cliché, garbage in, garbage out. Except now the garbage is flying in at lightning speed one document after another.
This can be challenging to unravel. And time consuming.

There are three things you must do to manage cloud-based accounting…

Number One – Set-Up Your Systems Correctly

You must design your systems elegantly. You must understand how information flows into your software and how to manage it, in real-time.

For example, when you set up bank feeds your software will (in the background, usually daily) log in to your bank and pull your banking transactions into your accounting software.

It will look for matches to transactions you have entered. When it finds a match, it will suggest you click “ok” to reconcile.

It is important to ensure that the systems of matching are aligned with the actual transactions entered.
This is one system.

You may have invoices being synced from an online shopping system, like Shopify.

Here, if you do not have the syncing setup correctly your inventory, sales tax reporting, accounts receivable, sales orders…pretty much everything…. could end up being a mess.

Number Two – Manage Your Systems

It is imperative that you have a highly focused technician, who understands software to manage the systems.

You will have transactions flowing into your software from various sources (feeds). However, you cannot assume that the transactions are correct. Some transactions can be pre-set to always be posted in the same way. That is fine.

An example would be fixed rent. The rent you pay to the landlord is always the same and will always get posted to the same account. You can set up a transaction like this to flow in without any human intervention.

Does the same apply to telephone bills? You can setup your system to fetch the bill from your phone provider (log in the phone provider and post the transaction). It can be setup for auto pay.

But wait, stop. What if the bill is wrong? What is the phone provider charged you $500 for something you did not use?

You will want your sharp technician to check exceptions to the rules and flag them for review.

Number Three – Technicians Must be Trained in Accounting

It may seem like, with cloud accounting, that you do not need to know how accounting works!

This is not true. Cloud accounting is still accounting. Every transaction in accounting has at least two sides.

For every event in accounting, at least two (often quite a few) things happen. Every single transaction has two sides. There is no such thing as a one-sided transaction in accounting.

Take a sale. You sell a product. What happens?

Someone now owes you something. Accounts receivable has gone up. Sales has gone up.

Taxes were involved, so taxes went up.

Your inventory went down, and at the same time, Cost of Goods Sold went up.

All these debits and credits must balance.

Debits and credits can be very confusing to non-accountants.

Therefore, your accounting technicians must understand basic accounting and how each transaction changes various accounts on your Balance Sheet and Income Statement.

A systems driven person, not understanding basic bookkeeping, will not see the background entries being done by the software.

The problem emerges when you need to unravel a mess.

In Conclusion

Cloud accounting is fast. It is a system. To manage correctly you need to have it managed by people who understand software, systems, and basic bookkeeping.

With one of those three ingredients missing, a mess can emerge.

Thanks for reading…