You are correct that you cannot just reverse the purchase.  This is not reality.  The reality is that the purchase happened, the payment happened and you actually have the inventory.

Also, if you just reverse the purchase, because of the payment (assuming it was done from the Payments module), it will create a credit note and then you will have other problems.

So the typical method bet is to record a manual payment reversal first, then post a separate purchase invoice (without using inventory items) to record a journal entry that is the reverse of the original purchase (eg. negative invoice), then go to Payments and apply the invoice against the reverse payment against the negative invoice.  The total should be zero, so no journal entry will be made in this last step.

This can be done all at the same time in a purchase invoice using the vendor and the date of stop payment.  For example, if your original purchase was

debit 5200 Purchases $1000

debit 2315 HST Paid $130

credit 2100 Accounts Payable $1130

and the payment was

debit 2100 Accounts Payable $1130

credit 1060 Bank  $1130

then you can ignore the Accounts Payable accounts and post an entry from purchases that changes Pay Later to Paid by Cheque.  Use the original Cheque number (eg. 1234) in the Cheque number field prefix Rev as in Rev1234 (you can use Void or Corr as you choose).

The entry should be on the first line -$1000 to account 5200 with HST as the tax.  Do not use item codes.

Look at the journal entry from the Report menu and see if it is the reverse of what you had originally.

debit 1060 Bank $1130

credit 2315 HST Paid $130

credit 5200 Purchases $1000

This puts the money back in the bank, removes it from the purchases expense and the HST Paid account but leaves your inventory as it was.

When it comes time to do your bank rec, you should see the original cheque still outstanding on the Withdrawal side and this entry on the Deposit side so you can click both.  I would change cleared to Reversed on the original and Adjustment on this entry but it is not mandatory.

Hopefully this will get you what you want.  Just make sure you know what you want before you post to make sure you get it.

Hi Richard,

Thank you so much for the detailed instructions.  I am having a problem though; when I go to do the negative purchase invoice, I enter the -$573.60 on the first line with no item number and then enter acct 1530, which is the original account that was debited when I did the original order (it's an inventory acct).  After I enter "1530" and tab out of the field, a list of accounts comes up, but 1530 (and two other inventory accounts) isn't on the list:

My first guess would be that because 1530 (along with the other two inventory accounts) is a linked account, I can't use it without an item number.  If that's the case, how do I move forward?

Thanks again for the help!

-Andrew