This article will cover how to handle the situation where you have received payment from your client, paid the vendor and then end up in the common situation where the check to the Vendor was not cashed, or you got a refund for the expense.
Negative amounts cannot be applied in the Vendors area, instead of adding a negative billing entry you will need to create a new payment to the Vendor using the proper Expense account where the money needs to come from.
On this bill, there is a $100 amount due that we want to issue back. First, click Add Payment under Vendor Bill Actions on this bill.
On this screen, you want to change the Withdraw From account field to the correct Expense account you wish to use to apply. Then, apply the full amount to the Vendor Bill at the bottom of this page.
Once the Expense account has been chosen and applied, this Vendor Bill will no longer have an amount due and can be closed.