From a trial balance
Trial balance to profit and loss
A profit and loss account is the trial balance's income and expense accounts, grouped into lines and set out from sales down to profit: sales less cost of sales is gross profit, less overheads and depreciation is operating profit, less interest and tax is the profit for the year. The asset, liability and equity accounts stay behind for the balance sheet.
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Every figure shown here is invented for illustration. Nothing on this page is computed from anyone’s accounts.
The workshop's year, from sales to profit before tax
The invented furniture workshop from trial balance to balance sheet, its income and expense accounts set out in order:
| Profit and loss, year to 31 March 2026 | £ |
|---|---|
| Sales | 401,000 |
| Cost of sales | (212,400) |
| Gross profit, 47.0% of sales | 188,600 |
| Wages and salaries | (98,600) |
| Rent | (24,000) |
| Other overheads | (19,800) |
| EBITDA | 46,200 |
| Depreciation | (12,000) |
| Operating profit | 34,200 |
| Bank interest | (2,100) |
| Profit before tax | 32,100 |
Every line is one or more accounts from the trial balance, and the balance sheet accounts take no part. The workshop has not yet provided for corporation tax, so the account stops at profit before tax.
Three steps from a trial balance to a profit and loss
- Pick out the income and expense accounts. Sales and other income carry credit balances, costs carry debit balances. Leave assets, liabilities and equity for the balance sheet.
- Group them into lines, in the order the account is read. Sales, cost of sales, overheads, depreciation, interest, tax. Keep depreciation and interest on lines of their own, or EBITDA and operating profit cannot be told apart.
- Subtotal and check. Gross profit, operating profit, profit before tax. The profit must be the amount the balance sheet adds to reserves; if the two disagree, an account is on the wrong statement.
A month's profit is the difference between two trial balances
Most accounting systems print income and expense accounts as totals for the year to date. A month's profit and loss is then this month's totals less last month's, except in the first month of the year, when the year to date is the month. Read a year-to-date trial balance as one month and October looks like seven months of trading.
Cost of sales is only right once the stock is counted
Cost of sales is opening stock plus purchases less closing stock. If closing stock was not counted and posted, the trial balance shows purchases instead, and gross margin swings with buying rather than selling. Businesses that count stock only at each quarter or year end have monthly margins that mean little in between; say so beside them.
Magic MIS lays out the profit and loss from every month's trial balance
Upload each month's trial balance, in Excel, CSV or a text PDF, and the workbook holds the profit and loss for the month, the year to date and the same month last year, with gross margin, EBITDA and their percentages, and profit before and after tax, and the same figures again in the layout of the company's framework. Year-to-date balances are turned into months for you. Each account is placed once and remembered, and on the board every figure opens to the accounts behind it. Prepaid credits, no subscription, and every action shows its price before it runs: see the credit packs.
What people ask about turning a trial balance into a profit and loss
Is a profit and loss the same as an income statement?
Yes. Profit and loss is the name in the UK and India, income statement in the US, and IFRS calls it the statement of profit or loss.
Where do drawings or dividends go?
Not in the profit and loss. They are taken out of equity on the balance sheet, after the profit has been made.
Why is my monthly profit and loss wrong when the trial balance is right?
Most often the trial balance shows year-to-date totals, so last month's need subtracting; or closing stock was not posted, so cost of sales holds purchases rather than what was used.
Does the trial balance need adjusting first?
For year-end accounts, yes: accruals, prepayments, depreciation and stock should be posted. A monthly management account usually works from the trial balance as it stands and says what it leaves out.
Read next
- Trial balance to balance sheet: three steps and a worked exampleHow to turn a trial balance into a balance sheet: split the accounts, group them into lines and carry the year's profit into reserves, with a worked example that balances.Read
- How do you calculate gross margin from a trial balance?(Revenue − direct costs) ÷ revenue × 100, with closing stock taken off direct costs. A worked example showing what the stock adjustment changes, and which ledgers count.Read
- How is EBITDA calculated in an MIS report?Revenue less direct costs, employee costs and other operating expenses, with other income kept below it. A worked example from EBITDA down to profit before tax.Read
Have this month's profit and loss built from your trial balance
Create an account, load last month's trial balance, and get the report — paid per action.
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