If you reverse a cheque in the payments module then the A/P is set back to show the payment as outstanding. Then you can reverse the corresponding invoice or issue a debit note to the vendor and this will completely reverse the related transactions. It will still show in the vendors account in A/P if you ever need to trace the transactions.

By using a general journal entry in the General Ledger Module you affect the accounts correctly but all transactions are left in A/P as though the full amount was paid which is not correct. This will cause confusion in the future when reviewing the vendor's account.

Thanks, Alwyn.  I've discovered that the A/P entry was created under Cash Accounting so I can't deal with it except using a GL entry.

I had created an invoice for the whole amount.  If I could reverse the cheque, it would show up in A/P as outstanding, but it really isn't since it's a damage deposit which has been returned.

How should I have done it in Sage?

Cash Accounting is generally not an acceptable method of bookkeeping in Canada unless you are in fishing or farming. I know many accountants go with cash accounting and then convert to accrual at year end for tax reporting. If accrual is used through out the year you have better control for items like this. Using the full A/P (and A/R) as they are designed provides flexibility. I always enter the vendor invoices separate from payments. Then if a payment needs to be reversed it is done on its own leaving the invoice outstanding to be paid again. If both payment and invoice are to be reversed then always remove the payment before reversing the invoice.

I find when an entry needs to be reversed for any reason it is usually best to back it out fully and start over. On occasion you can make the adjustment without fully reversing however it may not be as easy for someone else to follow what has been done without a lot of notation. Notes should always be made for this type of transaction.

In your case, I would try to enter a negative invoice and payment to cancel the cheque and reverse the original entry. Check the Report to be sure your entry is reversing the original, dr bank, cr expense account. Use all of the same data as the original entry with a current date.

Hope this works