CLM CLM Financial Management & Legal Budgeting 2

Question 1

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

Accepted Answer

Income statement

Answer

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

Question 2

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

Accepted Answer

The ratio of associates to equity partners

Answer

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

Question 3

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

Accepted Answer

Accounts receivable report

Answer

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

Question 4

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

Accepted Answer

Segregation of duties

Answer

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

Question 5

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

Accepted Answer

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

Answer

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

CLM - Certified Legal Manager Practice Test