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

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

Question 2

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

Accepted Answer

Realization rate

Answer

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

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

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

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

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

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

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

CLM - Certified Legal Manager Practice Test