To create a credit note, navigate to "Invoice" > "Invoices" and click on the detail page of the invoice you want to create the credit note for. Here you select "Create credit from" the "Options" menu.
A new page will open where you will find several settings for the credit note. When your are done, select "Save".
This will create a new invoice with a negative amount, balancing the original invoice. When you have selected "Balance immediately" in the previous screen there are also two internal payments booked. One payment on the original invoice and one payment on the credit note.
When you view the two invoices in the "List view" under "Options", it should look like the image below.