CLM CLM Financial Management & Legal Budgeting

Question 1

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

Accepted Answer

Zero-based budgeting

Answer

Incremental budgeting

Answer

Activity-based budgeting

Answer

Rolling budgeting

Question 2

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

Accepted Answer

Realization rate

Answer

Utilization rate

Answer

Collection rate

Answer

Leverage ratio

Question 3

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

Accepted Answer

To hold client funds separately from firm operating funds

Answer

To pay attorney salaries

Answer

To fund malpractice insurance

Answer

To manage partner distributions

Question 4

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

Accepted Answer

Office mortgage

Answer

Accounts payable

Answer

Accrued salaries

Answer

Prepaid expenses

Question 5

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

Accepted Answer

Activity-based costing

Answer

Direct cost method

Answer

Step-down method

Answer

Reciprocal method

Question 6

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

Accepted Answer

Cash flow shortfall

Answer

Increased tax liability

Answer

Higher realization rate

Answer

Reduced malpractice exposure