I've seen a few posts asking how to record refunds (not using the Paypal module). As far as I can tell, Zen doesn't have a built in way to do this. (Correct me if I'm wrong!... I'm using 1.3.7)

If you're using the Edit Orders module (I'm using v1.1), it allows you to add/delete/change the products to an order. To record a refund that shows up in the customers order status page as well as the Sales Report if you use it (as well as everywhere else, as far as I know), the best way I can see to do it is to add negative quantities to the order through the Edit Orders page. But the Edit Orders module does not allow negative quantities.

So, you'd make one small change to admin/edit_orders.php. Find where it says:

PHP Code:
            if($products_details["qty"] > 0) 
and change to

PHP Code:
            if($products_details["qty"] <> 0) 
After you make this change in the store, you would have to issue them a credit on their card separately through the payment gateway.