CLM Financial Management & Legal Budgeting Flashcards

Which budgeting method requires each department to justify all expenditures from scratch each budget cycle?

Answer: Zero-based budgeting

Zero-based budgeting requires every expense to be justified anew each period rather than building on prior year figures.

In a law firm, which financial metric measures revenue generated per attorney relative to billable hours worked?

Answer: Realization rate

The realization rate measures how much of billed time is actually collected compared to standard rates.

What is the primary purpose of a trust account in a legal department?

Answer: To hold client funds separately from firm operating funds

Trust accounts segregate client funds from the firm's own money to comply with professional responsibility rules.

A legal manager reviewing a balance sheet would find which of the following classified as a long-term liability?

Answer: Office mortgage

A mortgage extends beyond one year and is therefore classified as a long-term liability on the balance sheet.

Which cost allocation method assigns overhead expenses based on actual activity drivers such as billable hours or document volume?

Answer: Activity-based costing

Activity-based costing links overhead costs to the specific activities that consume resources.

When a law firm's accounts receivable aging report shows significant amounts in the 90+ day bucket, what is the most immediate financial risk?

Answer: Cash flow shortfall

Old unpaid invoices indicate clients are slow or unable to pay, directly threatening the firm's cash position.