Refund an Advance

When the work is cancelled and you are holding money you have not earned, you give it back.

Only the unapplied part is refundable, because the applied part has already settled invoices for work you delivered.

An advance invoice, RT-00001 for Brackenridge Engineering Ltd, in Draft, showing a Record Payment button, an Advance Draw Status of Awaiting Payment, a single service line for 1,500 pounds and a balance due of the same amount. — A refund returns the unapplied balance. What has already been drawn down cannot be refunded from here.

Refund it

Check what is actually unapplied
The customer overview shows advance held. That figure, not the original advance amount, is what can be refunded.
Raise the refund
From the advance, or from the customer's advance balance. Choose the account the money leaves from.
Set the date money left
This is what your bank reconciliation will match on.
Save
The liability clears by the refunded amount and your cash reduces.

The cancelled-job case

A job cancelled halfway through is the case that trips people up. You have delivered some work, invoiced it, applied part of the advance to it, and now hold the rest. Work through it in that order.

Step	What to do
Bill the work you did	Raise an invoice at full value for what was delivered.
Apply the advance to it	The delivered work is now paid for out of the deposit.
Check what is left	The customer overview shows the remaining advance held.
Refund the remainder	Only the unapplied part. That is the money you did not earn.

If you keep the deposit

A non-refundable deposit you are keeping is earned income, not a held balance. Raise an invoice for the cancellation fee and apply the advance to it. Leaving the balance sitting there indefinitely keeps a liability on your balance sheet for money that is yours.