Hello, highwater999.
Thank you for reaching out to the Community. The reason why it generates a new line on the customer transaction list, there is an open invoice on that said customer and where the credit memo is applied.
We can mark check it to apply toward payment, and once done, the invoice will close, and the balance will zero out.
To learn more about credit memo and how it works, you can refer to this article: Create and apply credit memos or delayed credits in QuickBooks Online.
That's it! Please let me know if there's anything else I can help with. I'm just one post away. Stay safe, and happy holiday!