I must be misunderstanding something very basic. No matter if I use Refund, or Credit Memo or whatever else, it still shows there is a negative balance on the account, but since I am refunding that negative balance, it shouldn't show we owe the customer anything. Here is an example of one of the accounts.

You will see that the deposit was paid for $1200 on 4/26/21. We create an invoice for the deposit which puts the $1200 into the liability account. Then the customer payment for the deposit amount is applied toward that invoice.

So now I tried following the steps you gave for a refund receipt, but now it is showing a negative balance on the account, as if we owe the customer another $1,200. It does correctly debit out the liability in the liability account to balance that out correctly in the chart of accounts as seen here:

but now because of that refund receipt it indicates the customer's account says we owe them more money. I need the chart of accounts to work like this (show the decrease), but still have a note about the refund in the customer's account without having it put the customer's account into a negative balance.

What am I missing here? I've read through every single link sent to me and everything I can read on deposits in the forum here, but I can't seem to do it in a way that doesn't put the customer into a negative balance. Are we doing something critically wrong?