1. Select Payables (Vendors & Purchases), then Payments.
2. Select the vendor.
3. From the main menu, select Payment, then Include Fully Paid Invoices/Prepayments.
4. Change the Paid By box to Cash.
5. Change the From box to select the correct account in which to record the reversal.
6. Add information to the receipt number. For example, NSF, stale-dated, reversed, void.
7. Change the date to the date your bank reversed the payment.
8. In the Payment Amount column, select the invoice and enter the amount as a negative.
9. Enter any Comment, the click Post.

Reverse and re-create a vendor payment see How do I void a vendor payment without reversing it?