Accounting for purchases, prepayments, payments tracking, bank reconciliation.
Keywords: Accounting for purchases, prepayments, sales taxes from purchases, payments tracking, bank reconciliation.
Sales taxes that are paid on purchases of raw materials (producing USA).
According to IRS 535 Business Expenses, Page 18 sales taxes that Bob pays on purchases of materials are business expenses (sales taxes are included into material cost), i.e. they are deducting income tax:
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Any sales tax you pay on a service for your business, or on the purchase or use of property
in your business is treated as part of the cost of the service or property.
If the service or the cost or use of the property is a deductible business expense,
you can deduct the tax as part of that service or cost.
If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise.
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That is, sales taxes from purchases are included into inventory and they become expenses automatically as part of Cost Of Goods Sold (method FIFO in this case). So Bob should set accounting settings "Extract sales taxes from purchase" to No, and set "Enabled" to "No" for "Entries source" #4 "Purchase invoice. Debit Sales tax from purchase per tax, Credit Payable per vendor for tax amount.":