ok found my own solution - too bad QBO staff can't help in cases like that!
So like stated before, we made a purchase, I entered the bill. The vendor accidentally over charged us $50 at time of payment with our credit card. This payment automatically created a credit with the vendor (unapplied credit).
We now received the money back on the credit card.
Create "credit card credit" - Item/Service is 'accounts payable".
If you go back to your vendor account - you now have a balance owing.
Create cheque and add both transactions - transaction amount is $ 0.00
Vendor account is now balanced.