Hey there, @michella. Thanks for touching base with us again.

I recommend consulting with your accountant to find out which category to use, as every business is different and uses different categories. Your accountant will have the knowledge and expertise to make the appropriate recommendations for this.

In regards to applying the credit memo to an invoice, you can do so by following these steps:

1. Click Sales from the left pane.
2. Select Customers and click the customer’s name.
3. Locate the invoice you want to apply the credit to and click Receive Payment.
4. Enter the necessary information on the Receive Payment window.
5. In the Outstanding Transactions section, make sure that the correct invoice is selected.
6. Click Save and close.

The steps above will help you apply the credit to your customer’s open invoices. For your reference, you may check out this article: Apply a credit memo, credit or refund to a customer.

Let me know if you have any other questions, I'm here to help. Have a wonderful evening!