Arthur, CPA, is auditing the RCT Manufacturing Company as of December 31, 2007. As with all engagements, one of Arthur’s initial procedures is to make overall checks of the client’s financial data by reviewing significant ratios and trends so that he better understands the business and can determine where to concentrate his audit efforts. Arthur has computed the current ratio and a turnover ratio for accounts receivable. Additional information:

• The company has only an insignificant amount of cash sales.

• The end-of-year figures are comparable to the average for each respective year.

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Current Ratio Current ratio (current assets divided by current liabilities) 2007 2006 2.68 to 1 2.49 to 1 Accounts Receivable 2007 2006 Accounts receivable turnover 18.1 times 25 times (sales divided by accounts receivable)