An internal auditor makes a series of observations when performing an analytical review of division operations. The auditor notes the following things: the current ratio is increasing and the quick ratio is decreasing, sales and current liabilities have remained constant, and the number of day sales in inventory is increasing. Which conclusion should the auditor draw from this data?
A) Cash or accounts receivable has decreased.
B) The gross margin has decreased.
C) The division produced fewer items this year than in prior years.
D) The gross margin has increased.

Question

Quizplus · Accepted Answer

The quick ratio decreasing while the current ratio is increasing suggests that cash or accounts receivable has decreased, as the quick ratio excludes inventory and focuses on more liquid assets.

An Internal Auditor Makes a Series of Observations When Performing