CLM Financial Management & Legal Budgeting Flashcards

Which financial statement shows a firm's revenues, expenses, and net income over a specific period?

Answer: Income statement

The income statement (profit and loss statement) summarizes revenues and expenses to show net income for a defined period.

What does the term 'leverage' refer to in a law firm partnership context?

Answer: The ratio of associates to equity partners

Leverage in a law firm context measures how many associates or non-equity timekeepers support each equity partner.

A legal manager implements a billing rate increase. Which financial report would FIRST reflect the impact of this change?

Answer: Accounts receivable report

Higher billing rates increase the value of outstanding invoices, which first appears in accounts receivable before cash is collected.

Which internal control practice best reduces the risk of financial fraud in a legal department?

Answer: Segregation of duties

Segregation of duties ensures no single employee controls all aspects of a financial transaction, reducing fraud risk.

In legal billing, what is the difference between a 'write-down' and a 'write-off'?

Answer: A write-down reduces the billed amount; a write-off removes an uncollectible balance entirely

A write-down adjusts the invoice to a lower amount before or after billing; a write-off eliminates an uncollectible receivable from the books.

Which budgeting approach uses prior year actuals as the starting baseline and adds or subtracts a percentage for the new period?

Answer: Incremental budgeting

Incremental budgeting adjusts the existing budget by a set amount or percentage rather than rebuilding from scratch.