I've been reading about the way Hollywood accounting works and I think I am going to adopt their system. It's a wonder of ingenuity, based on wholly novel accounting principles.

Say I buy a cup of coffee and the seller wants $4. I will pay $2, because I am subtracting the cost of P and A, which in this case stands for parking and asking. Subtract another dollar for distribution, which is to say drinking the coffee, and another dollar for disbursements – chucking the cup in a bin.

So really, they should be paying me to drink it, because I am promoting their coffee. See? Ingenious, isn't it?

Warner Brothers Harry Potter and the Order of the Phoenix grossed almost $US610 million but 'lost' $US167 million.

Yes, I am exaggerating, so let's look at some real examples of how Hollywood accounting works. Finding them isn't easy, because Hollywood will do almost anything not to open their books to scrutiny. Al Capone would have been happy to have books this closed, but occasionally, we get evidence of how the pros do it.

A few years ago, someone leaked a Warner Bros distribution report for Harry Potter and the Order of the Phoenix, showing the figures after two years in distribution. The total gross to late 2009 for the movie was $US609,912,643. From which Warner Bros took a whacking distribution fee of $US211,800,286, leaving the gross at just over $US398 million.

This was before expenses: $US29 mill for prints, $US131 mill for advertising and several "couple of mills" here and there for editing, titles, freight, trade associations, union residual payments and the cost of pool boys and gardeners for the various executive producers.

I made that last bit up, but it's hardly less creative than these accounts. With all the expenses coming to about $US192 million, the gross is now down to $US206 million.

But wait, there's more. Take off the negative cost and advances (basically the cost of shooting the picture) of $US315 million and interest charges of almost $US58 million and the picture is now in the red, to the tune of $US167 million. So a movie that made $US610 million actually lost money?

Of course not – because Warner Bros was able to pay itself $US211 million in distribution fees, as well as recovering every cost it could claim.

And what is a distribution fee anyway? Well, basically it is the fee for Warner Bros being able to say, before the picture ever gets made, that it will get into theatres – because they have existing relationships with all the theatre owners, and they want their product – especially when it's a Harry Potter movie.

You could say it is paying the studio for an introduction to people who already want to meet you, because you're giving them a way to make money. Or you could say it is paying the studio for their pre-existing relationships with audiences, their goodwill. Whatever we say it is, they get paid, first and often.

And the losses are not their losses because each movie operates as a separate company, set up for the purpose of making the movie, to which the studio charges for services. I am not singling out Warners – every studio does it the same way.

Why go to such lengths to lose money? Because losing money is profitable. If the picture loses money, there's no net, so actors who have a percentage of the net never get paid. As a number of news outlets pointed out in 2011, that is why Darth Vader never gets a cheque.

Return of the Jedi has made $US475 million worldwide since it debuted for Fox in 1983, but the actor who played him, David Prowse, never sees a dime more than his original fee, because he had what Eddie Murphy calls "monkey points" – a slice of the net.

"There is a big difference between having a share of the gross profits and having a share of the net," Prowse was quoted as saying at the time. "It is a huge difference in just one word."

Or, as David Mamet eloquently put it in Speed the Plow, in Hollywood "there is no net". The real Death Star turns out to be run by accountants, who studied at the same schools as those who run Wall Street. I wouldn't be surprised if the idea for a sub-prime loan came from Hollywood.

Poor actors can never afford to challenge the studios, of course, but rich ones can – which is why there have been a string of lawsuits that are almost always settled. That's because paying the one, two or ten million is better than opening the accounts to scrutiny.

One of the interesting developments in Hollywood accounting concerns foreign government subsidies, to attract film production.

The New Zealand Herald speculated a few years ago that the NZ government had spent about half a billion dollars over 10 years in subsidies. What do governments get for that money? Prestige and tourism, of course, and jobs, but at what cost?

A study in Michigan found that film subsidies offered by that state amounted to a cost of $US200,000 for every job created. And what scrutiny of the accounts do governments get, when they are giving millions to companies whose attitude to truth-in-accounting is about as good as Darth Vader's attitude to parenting?

Generally none, if the money is in the form of grants and tax incentives, rather than direct investment. It's public money that the studios never have to account for.