There are several ways you can deal with refunds in Accounting, from Banking, from the Invoice, from the Bank Import:

(Please note the options described here are not suitable to Start users, please check Accounting Start Index - Corrections )

From Banking 

Vendor and Customer Refunds:

• Banking > New > Sales/Receipt> Vendor Refund
• Banking > New > Expense/Payment > Customer Refund
  • From there, record only a Customer or Vendor Refund against payment on account or a credit note
  • The refund must be for the full amount of the payment on account or credit note, it cannot be for a partial amount

Other Receipts and Other payments refunds:

• Banking > New > Sales/Receipt > Other Receipt > Enter a refund for a purchase 
• Banking > New entry > Payment > Other Payment > Enter a refund for a sale 
  • This allows to record the transaction when recording a normal refund against payment on account or credit note is not relevant or not possible
  • Select a vendor for the Other Receipt and a customer for the Other Payment
  • This type of transaction does not affect the balance due. About Other Receipts and Other Payments in Accounting
  • Enter any amount can be entered

From a Sales Invoice

• Select the invoice> payment link > Refund option
  • This allows you to unallocate the payment from the invoice and record the refund against it at once
  • You do not have to unallocate manually then record refund against payment on account from banking
    
    • How to Process a Return and Refund from a Sales Invoice in Accounting?
  • This option is not available for Vendor Bills

From Banking import > incoming bank transactions window

NOTE: Not all functionalities available from Banking are available from the Import window : 

• Match and record a refund against a credit note, for the full amount is available
• Import a refund directly against payment on account is unavailable
  • Instead, record the refund from Banking first
  • Match the imported transaction to the refund recorded manually

Please see below how to deal with specific scenarios : 
Basic scenario - Refund for a return of merchandise with Credit note

1. An invoice for 500 was fully paid:
   
   • Record invoice for 500 + payment 500
2. Part of the merchandise was returned , a credit note for 150 was sent and 150 refunded
   
   • Create standalone credit note for 150
   • Record refund of 150 against the credit note, possible from both
     • Banking >New >Refund tab or
     • Bank import>Match
       

Basic Scenario - Full refund of payment on account

1. Payment on account to vendor was sent waiting for a service to be carried out
   
   • Record the payment on account 
2. The service was never carried out and the vendor refunded the money fully
   
   • Record the refund against the payment on account
     

Scenario - Incorrect invoice + New invoice with Partial refund 

1. An invoice A for 800 was created and fully paid
   
   • Create invoice 800 + record payment 800
2. The invoice was cancelled and a new one invoice B created for 500, the difference 300 refunded.
   
   1. Unallocate payment from invoice A > save as payment on account 800
   2. Void invoice A or create credit note against it to cancel it.
   3. Create new invoice B for 500
   4. From contact Allocate partially 500 to the invoice B > 300 left to allocate
      • Mange>Account Allocation
   5. From banking record refund of 300 against 300 payment on account

Scenario - The vendor refunded more than expected

• Because you can only refund for the exact amount of the original transaction or credit note, you need to ignore the transaction received, and instead record manually 2 separate transactions:
  
  1. Record the refund expected against the original payment on account: from from banking > New  > Refund against payment on account
  2. For the over-payment, you can either
     
     • create a standalone credit note and record the refund overpaid against it
     • or record the over-payment as Other receipt for purchase