What characterizes debt as a source of capital?

Debt is characterized as a source of capital primarily because it involves borrowing money, typically through loans or notes, to finance business operations, investments, or projects. When a company takes on debt, it enters into an obligation to repay that amount, often with interest, at a future date. This borrowing allows businesses to access funds without diluting ownership, as it does not involve issuing equity shares to investors.

In contrast, other options represent different aspects of financing or business operations. When investors pay for equity shares, they are providing capital in exchange for ownership stakes, which is not considered debt. Money earned from selling goods and services reflects revenue generation rather than capital sourced from borrowing. Lastly, dividends are payments made to shareholders from a company's profits, which do not involve taking on debt and instead pertain to profit distribution after earnings have been generated. Thus, the essence of debt is rooted in the principle of borrowing and the subsequent obligation to repay that borrowed amount.