Hollywood accounting

Hollywood accounting (also known as Hollywood bookkeeping) refers to the opaque or creative accounting methods used by the film, video, and television industry to budget and record profits for film projects. Expenditures can be inflated to reduce or eliminate the reported profit of the project, thereby reducing the amount which the corporation must pay in royalties or other profit-sharing agreements, as these are based on the net profit.

Hollywood accounting gets its name from its prevalence in the entertainment industry—that is, in the movie studios of Hollywood at a time when most studios were located in Hollywood. Those affected can include writers and actors.

Hollywood accounting can take several forms. In one form, a subsidiary is formed to perform a given activity and the parent entity will extract money out of the subsidiary not in terms of profits but in the form of charges for certain "services". The specific schemes can range from the simple and obvious to the extremely complex.

Three main factors in Hollywood accounting reduce the reported profit of a movie, and all have to do with the calculation of overhead:

All of the above means of calculating overhead are highly controversial, even within the accounting profession. Namely, these percentages are assigned without much regard to how, in reality, these estimates relate to actual overhead costs. In short, this method does not, by any rational standard, attempt to adequately trace overhead costs.

Because of this, net points which are a percentage of the net income (i.e. gross income minus expenses), as opposed to a percentage of the gross income are sometimes referred to as "monkey points". The term is attributed to Eddie Murphy, who is said to have also stated that only a fool would accept net points in their contract. Actress Lynda Carter on The Late Show with Joan Rivers commented "Don't ever settle for net profits. It's called 'creative accounting'."

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