ALA ALA Financial Management and Billing 1

Question 1

Which billing method charges clients a set fee per month regardless of hours worked?

Accepted Answer

Retainer billing

Answer

A retainer arrangement charges a fixed monthly fee in exchange for a defined scope of legal services.

Question 2

Under the ABA Model Rules, which of the following makes a legal fee unreasonable?

Accepted Answer

Charging for work not performed

Answer

Model Rule 1.5 requires that fees be reasonable and prohibits billing for services not actually rendered.

Question 3

What does a law firm's realization rate measure?

Accepted Answer

Percentage of billed hours actually collected

Answer

The realization rate is the percentage of billed amounts that are ultimately collected from clients.

Question 4

Which document summarizes a law firm's revenues, expenses, and net income over a reporting period?

Accepted Answer

Income statement

Answer

An income statement (profit and loss statement) reports revenues and expenses to show net income or loss for a period.

Question 5

What is the purpose of a trust account in a law firm?

Accepted Answer

To hold client funds separate from firm operating funds

Answer

Trust accounts (IOLTA) must hold client funds separately from firm funds to prevent commingling, as required by state bar rules.

(ALA) Association of Legal Administrators CLM Practice Test