I myself categorize it the same as the category under which the purchase was made. For example, if I made a purchase from Office Depot that would be categorized as "Office Supplies and Software" and I returned the items for a refund, when the refund appears in my credit card transactions, I'd categorize the refund as "Office Supplies and Software". That way, in my Profit and Loss report, the actual amount my business spent on office supplies would be accurate. In other words, when I get my money refunded, that money goes back into my "Office Supplies and Software" budget. I hope that helps.
