For orders that are invalid or returned, the best course of action is to void the order. Voiding an order will remove the payment for that order from your financial stats, and it will add all quantities in the shipped column back into stock. It is only possible to void an order from the Orders page line item.
How to void an order:
Navigate to Inventory > Orders and search for the order number. At the top of the expanded order details, you'll see some basic order info arranged into a row as is shown here:
2. Click on "Void this Order" on the right hand side of the row and after you confirm it via a pop-up notification, the system will void the order. This will move the order status to void, and return all quantities listed in the order's "shipped" column back into stock.
3. If you would like to return quantities different from what was included in the original order, make those changes to the "shipped" column before you void the order. By default, the "shipped" and "ordered" columns will have identical entries, so voiding an order without making any changes to this column will put the exact amount of product ordered back into stock.