I've really struggled with this recently in Quickbooks 2004. I think I've got it sorted now, so here's the process I followed.

Situation: I buy something (for 99.99) and pay with the company credit card. Weeks later (perhaps in the next VAT quarter) I send it back. The company issues a credit note and refunds my credit card.

Original bill
Items filed in account: Insurance
Paid by credit card. Credit card gets reconciled. Credit card bill paid by direct debit from Current account.

On receiving the credit note
Create credit note (like Create Bill, just credit note)
Assign items to account: Insurance (so it balances out)

Next step is to make Journal entries to make it all work
Accounts payable
Credit 99.99
Credit card
Debit 99.99

Then go into Pay Bills
Because journal entries appear as bills, you can 'Pay' them. Click 'Use Credit' because we don't want to pay for it twice - we want to pay for it using the credit note we've already created.

Everything zeroes out.