Which of the following correctly defines a role of investments in securities for a business?

• A. To record all company expenses in the income statement.
• B. To reduce the company's equity by issuing more shares.
• C. To allocate excess cash into financial instruments to earn a return.
• D. To increase the company's liabilities through borrowing.

Answer: (C)

Verified step by step guidance

1. Understand the concept of investments in securities: Investments in securities refer to the allocation of excess cash by a business into financial instruments such as stocks, bonds, or mutual funds to earn a return on the investment.
2. Analyze the options provided in the question: Each option represents a different financial activity or concept. Evaluate which one aligns with the purpose of investments in securities.
3. Option 1: 'To record all company expenses in the income statement' - This is incorrect because recording expenses is part of financial reporting, not related to investments in securities.
4. Option 2: 'To reduce the company's equity by issuing more shares' - This is incorrect because issuing shares affects equity and capital structure, not investments in securities.
5. Option 3: 'To allocate excess cash into financial instruments to earn a return' - This is correct because it directly defines the role of investments in securities for a business. Investments are made to utilize surplus cash effectively and generate additional income.