Final answer:
Inventory itself is not inherently a source of funds. Instead, it's the profits made from selling the inventory that can be a source of capital for a business, as they can be reinvested or used to secure loans.
Step-by-step explanation:
The question asks whether inventory is considered a source of funds because of the revenue it brings in, to which the answer is False. Inventory itself is not a source of financial capital but rather a current asset that can potentially generate revenue when sold. The ability to generate revenue from inventory depends on successful sales efforts and market demand. Moreover, keeping inventory also incurs costs like storage and possible obsolescence. Therefore, inventory is not inherently a source of funds; it is the profits from inventory sales, when revenues exceed costs, that can be reinvested into the business, serving as a source of capital.
The fact that firms can use profits as a source of financial capital by reinvesting in equipment, structures, and research and development highlights how revenue-generating activities can ultimately become a source of funds. However, firms often require additional sources of financial capital, such as loans from banks or issuing bonds, especially when profits are low or during the startup phase. The profits made from selling inventory or services allow businesses to reinvest in their operations and can serve as a credible basis for borrowing.