Step by Step:

Follow the steps below if a customer makes a payment against a sales or service order, and now wants to cancel the order and has requested a refund:

Step 1: Go to the customer profile.

Step 2: Select [Credit Memos] from the profile menu.

Step 3: Look to see if there is a Customer-Deposit Credit Memo in the amount of the requested refund. It will have a memo number similar to this example:  Deposit-Order 26005.

Step 4: If there is a credit memo in the amount of the requested refund simply click on the credit memo to highlight it.

Step 5: Click on the Options button.

Step 6: Select Refund Memo and this will create a refund based on the selected refund payment method and close the credit memo. This will also restore the order back to the original order amount.