What Is Annuity in Advance?

Annuity in advance is a series of payments that are due at the beginning of each successive time period. Rent is the classic example of an annuity in advance for a landlord because it is a sum of money paid at the beginning of each month to cover the period to follow. An annuity in advance, a legal and accounting term, is also called an "annuity due."

Understanding Annuity in Advance

Annuity in advance has nothing to do with the financial or insurance product "annuity," despite the use of the word. Another way to describe an annuity in advance is a series of equal payments that are received at the beginning of each equally spaced period. The payment is made before a service is rendered or before a good changes hands, so no interest is applied. It also means that the 澳洲幸运5官方开奖结果体彩网:present value🐲 of an annuity in adv🐲ance is higher than payments made later, such as after a service is provided or goods change hands.

There are three elements of ꧒a♔n annuity in advance or an annuity due:

1. Each payment is in the same amount (for example, a series of $100 payments)
2. Each and every payment is made at the same time interval (such as monthly, quarterly, or annually)
3. Each and every payment is made at the beginning of the specified time period (for example, a payment made on the first day of each month)

Annuity in Advance vs. Annuity in Arrears

The opposite of an annuity in advance is an 澳洲幸运5官方开奖结果体彩网:annuity in arrears (also called an "澳洲幸运5官方开奖结果体彩网:ordinary annuity"). Mortgage payments are an example of an annuity in arrears, as they are regular, identical cash payments made at the end of equal time intervals. Like rent payments, mortgage payments are due on the first of🧸 the month. However, the mortgage payment covers t🔯he previous month's interest and principal on the mortgage loan.

One instance where the difference between an annuity in advance and an annuity in arrears matters is iᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚn the valuation of income properties. If payments are received at the beginning of the rental period rather than at the end of the rental period, the present value of those payments increases. It is also possible to use in advance or an ordinary annuity.

Since most payments are made at the beginning of a period rather than at the enꦉd, the annuity in advance (annuity due) c♔oncept is more frequently employed compared to the annuity in arrears (ordinary annuity) concept.

Annuity in Advance Example

In addition to rent as the most common example of an annuity in advance, there are leases. For example, assume that a company contracted for the use of a piece of hardware via a lease that required a regu🎶lar payment of $1,000 at the beginning ꦜof every month for five years. Such an agreement would amount to an annuity in advance since each payment is equal, and is made at the start of each uniform interval.