Editing Nostro and vostro accounts (section)

==Accounting==

===Conventions===
A bank counts a ''nostro'' account with a debit 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 computerized 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 system|double-entry bookkeeping]].<ref>{{cite book |url=https://books.google.com/books?id=dxNP4CoJN4EC&q=nostro+account&pg=PA52 |title=Bank & Brokerage Back Office Procedures & Settlements |author=Mervyn J. King |date=2000 |page=52|publisher=Global Professional Publishi |isbn=9781579581060 }}</ref>

===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:

{| class="wikitable"
| (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:

{| class="wikitable"
| USD Account in name of '''C'''
| 2,000,000 DR
| USD Account in name of FNBA (CMB's vostro)
| 2,000,000 '''CR'''
|}

If C does not have an account directly with FNBA's corresponding bank, the funds may be transferred within the banking system of country B by cheque or some form of [[electronic funds transfer]] (EFT). In this case CMB will make entries on several other accounts, such as a teller's receiving account, or a [[clearing account]] with the third bank holding C's account.