Question

Businesses hold short-term securities for which of the following reasons

A.As a substitute for cash
B.As a temporary repository for cash being accumulated for a specific purpose
C.As a buffer against bad debt losses
D. Answers a. and b. are both correct
E.Answers a., b., and c. are all correct

Answer 1

Answer: Option D

Explanation: Short term investments can be defined as the liquid investments that are expected to be sold or be converted into cash within a particular time period, generally a year or operating cycle of the company. Primary examples are commercial paper and US treasury bills.

These are generally used to have cash availability at short term notice in the entity or for some future project funding investment. For bad debt buffering specific provisions are made.