To understate net income and lower income tax liability, an accountant could fraudulently expense costs rather than properly capitalizing them to an asset account. Is this statement true or false?

The statement is true. When an accountant fraudulently expenses costs instead of capitalizing them, it leads to an immediate reduction in net income. This is because expenses are deducted from revenue in the current period, diminishing the amount of income reported on the financial statements. Consequently, by understating net income, the accountant effectively lowers the income tax liability for that period, as taxes are typically based on that reported net income.

By not capitalizing the costs, which would spread the expense over the useful life of the asset, the accountant can manipulate financial outcomes to create a more favorable tax situation in the short term. This action is considered fraudulent because it involves the intentional misrepresentation of financial data to deceive stakeholders or tax authorities. In essence, this fraudulent behavior violates accounting principles and ethics, as it distorts a company's true financial position.

The other options would lead to ambiguity or a lack of clarity regarding the fraudulent nature and the implications of misclassifying expenses. Hence, the accurate interpretation confirms that expensing rather than capitalizing assists in the fraudulent act of manipulating net income and tax liabilities.