1. On a company's balance sheet, loans are generally classified as liabilities because they represent money that the company owes to external parties.
2. However, in certain circumstances, loans may also be considered assets. For example, if a company borrows money to purchase equipment that will generate future cash flows, the equipment becomes an asset, and the loan is viewed as financing that asset.
3. Therefore, the determination of whether a loan is an asset or liability depends on its specific nature and use within the company.