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What is an ordinary annuity?

Author:
Harold Averkamp, CPA, MBA

Definition of Ordinary Annuity

In accounting, an ordinary annuity refers to a series of identical cash amounts with each amount occurring at the end of equal time intervals. Another term for ordinary annuity is annuity in arrears.

Example of Ordinary Annuity

The series of semiannual interest payments that are part of a bond payable is an example of an ordinary annuity.

A 10-year bond with a face value of $10 million and a stated interest rate of 6% will include an ordinary annuity consisting of the required interest payments of $300,000 at the end of each of the 20 six-month time intervals.

Another example of an ordinary annuity is a mortgage loan having a fixed interest rate and a series of equal monthly payments. For instance, a 15-year mortgage loan will result in an ordinary annuity of 180 equal monthly payments with the first payment due approximately 30 days after the loan is made.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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