Credit Memo's are used for giving refunds to Customers. We can either Refund the total amount of order to customer i.e. Product cost, Shipping Fee etc. or can Refund Partial Amount as needed.\r\n\r\nFor Creating Credit Memo for an order in Magento, First You need to create Invoice for that particular order. (As no refunds can be given to an order until it is been invoiced).\r\n\r\nSo, After the order is raised, You will First have to create an Invoice for that order. And after the Invoice is created, when you open that order, it will give you an option of Credit Memo, from where you can create Credit memo for that particular order to refund for it.\r\n\r\nCredit Memo page seems quite similar to order page, as it contains the products ordered, shipping charges, amounts, and totals.\r\n\r\nBut while creating Credit Memo for invoice, you will have to take precautions of what you are refunding.Magento by default, gives option to refund for all the products of order, but you can edit them from "Quantity" field. and refund from adjustment refund, by adding comment as type of refund. We can select or dis-select the products and products quantity to be refunded by editing their quantity. Also we can refund Shipping charges.\r\n\r\nSteps to Create Credit Memo:\r\n\r\n\tGo to: Sales > Orders\r\n\tClick and open the order to which refund is to be given.\r\n\tClick on "Credit Memo" Button. (Credit memo button will appear only if order is been invoiced.)\r\n\tEdit and update the quantity of products to be refunded, also check "Return to stock" if product is to be returned to inventory.\r\n\tNow From the recalculated total, edit Shipping amount to be refunded.\r\n\tEnter the amount to be refunded into "Adjustment Refund". (this will be added to "Total Refunded")\r\n\tEnter value to "Adjustment Fee" if needed. (this amount will be subtracted from the "Total Refunded")\r\n\tClick "Refund to store credit" check box for refunding the amount to Customer.\r\n\tAdd Comments to the Comment box which will be used to differ the Amounts Refunded.\r\n\tTo email the credit Memo, check on "email Copy of credit Memo".\r\n\tTo Include the Comments Entered, Click on "Append Comments" check box.\r\n\tEnter email address in "Send invoice email copy to" field, if you want to mail it to someone other.\r\n\tClick on "Refund offline" or "Refund online" button below order total to apply the refunds.\r\n\r\nWe can Also use Credit Memo as an Order Editor, as we can edit the order using it. The amount refunded by default are shown in "Total Refunded" field as an addition of all refunds. But we can distinguish the refunds by modifying it with the help of Magento Customization.