A bank counts a nostro account with a credit balance as a cash asset in its balance sheet. Conversely, a vostro account with a credit balance (i.e. a deposit) is a liability, and a vostro with a debit balance (a loan) is an asset. Thus in many banks a credit entry on an account ("CR") is regarded as negative movement, and a debit ("DR") is positive - the reverse of usual commercial accounting conventions.
With the advent of computerised accounting, nostros and vostros just need to have opposite signs within any one bank's accounting system; that is, if a nostro in credit has a positive sign, then a vostro in credit must have a negative sign. This allows for a reconciliation by summing all accounts to zero (a trial balance) - the basic premise of double-entry bookkeeping.
Typical usage:Nostro accounts are mostly commonly used for currency settlement, where a bank or other financial institution needs to hold balances in a currency other than its home accounting unit.
For example: First National Bank of A does some transactions (loans, foreign exchange, etc.) in USD, but banks in A will only handle payments in AUD. So FNB of A opens a USD account at foreign bank Credit Mutuel de B, and instructs all counter-parties to settle transactions in USD at "account no. 123456 in name of FNBA, at CMB, X Branch". FNBA maintains its own records of that account, for reconciliation; this is its nostro account. CMB's record of the same account is the vostro account.
Now, FNBA sells AUD1,000,000 to C (a counterparty who has an AUD account with FNBA, and a USD account with CMB) for a net consideration of USD2,000,000.
FNBA will make the following entries in its own accounting system:
Over at CMB, they record the following transaction:
With the advent of computerised accounting, nostros and vostros just need to have opposite signs within any one bank's accounting system; that is, if a nostro in credit has a positive sign, then a vostro in credit must have a negative sign. This allows for a reconciliation by summing all accounts to zero (a trial balance) - the basic premise of double-entry bookkeeping.
Typical usage:Nostro accounts are mostly commonly used for currency settlement, where a bank or other financial institution needs to hold balances in a currency other than its home accounting unit.
For example: First National Bank of A does some transactions (loans, foreign exchange, etc.) in USD, but banks in A will only handle payments in AUD. So FNB of A opens a USD account at foreign bank Credit Mutuel de B, and instructs all counter-parties to settle transactions in USD at "account no. 123456 in name of FNBA, at CMB, X Branch". FNBA maintains its own records of that account, for reconciliation; this is its nostro account. CMB's record of the same account is the vostro account.
Now, FNBA sells AUD1,000,000 to C (a counterparty who has an AUD account with FNBA, and a USD account with CMB) for a net consideration of USD2,000,000.
FNBA will make the following entries in its own accounting system:
| (Internal) FX AUD trading account | 1,000,000 DR | AUD Account in name of C | 1,000,000 CR |
| USD Nostro at CMB (FNBA's nostro) | 2,000,000 DR | (Internal) FX USD trading account | 2,000,000 CR |
Over at CMB, they record the following transaction:
| USD Account in name of C | 2,000,000 DR | USD Account in name of FNBA (CMB's vostro) | 2,000,000 CR |
