What is securities method of accounting for securities?

The securities method of accounting is used for investments in equity securities where the investor has significant influence over the investee, typically defined as owning 20% to 50% of the voting stock. Under this method, the investor recognizes its share of the investee's earnings or losses in its income statement, which adjusts the carrying amount of the investment on the balance sheet accordingly. Dividends received from the investee reduce the carrying amount of the investment rather than being recognized as income. This approach contrasts with the cost method, where investments are recorded at their purchase price without reflecting the investee's performance.