The basic steps as I see it:
1) Sell the item originally to a customer on a Retail invoice
2) Bring the item back in with a quantity of -1 on a Warranty invoice – physical item is now flagged as Defective in inventory
3) Create a new Return Order
4) Browse for and add the single Defective item to the Return Order and post – click YES to create an AP
5) Create the PO for receiving the item back in
6) Post and Receive the PO – click YES to create an AR
You now have an AP for the item, and an AR for the item, and the totals on them should match. Now:
1) Bring up the AR record in TSS
2) Click Functions>Make Payment
3) For How Paid, select AP CREDIT
4) In the grid below, place a check under “Pay”
5) Click Apply Payment(s)
6) Bring up the AP record for the Return Order (not the AP CREDIT created in step #3)
7) Click Functions>Pay by Credit Invoice
8) Under “Credit Invoice Number”, click the […] button, and select the CREDIT AP created in step #3
9) Click Apply