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Hollywood’s Absolutely Bizarre Accounting Tactics » Meaning Of Accounting In Simple Words

“Forrest Gump” has never made a single penny for the studio that made it, despite selling over $300 million worth of tickets at the box office.

“Accountants talk about Hollywood accounting like a kind of wayward cousin, partly because it diverges from the United States’ generally accepted accounting principles or GAAP .

And while experts say this kind of creative accounting is perfectly legal, the tactics involve some of the most fantastical fictions ever devised in Tinseltown.

“There are a lot of different tricks,” said Stephen Glaeser, an associate professor of accounting at the University of North Carolina at Chapel Hill.

If the movie-making subsidiary makes a profit, the studio then charges the subsidiary — as in, the little company the big company owns, operates, and entirely controls — fees for distribution etc.

The profits then go straight to the studio in the form of fee payments, so that, on paper, the subsidiary never makes any profit.

Because actors and other creatives involved in making it have profit-sharing deals in their contracts. If there’s no profit, the studios don’t have to pay them out.

In other words, it’s on actors and writers to make sure any profit-sharing deals are tied to revenue or ticket sales, rather than net profit.