@MaryLandT : Thank you very much for providing lucid explanation, both verbal and visual.

I have followed your guidance in changing the Category to Accounts Payable (A/P). However the totals are not zero as in your image. Here is my screen shot and more details below:
 The screen shot shows the sequence of events and the corresponding transactions:

1. Bill (with excess charge) ($1335.09)

2. Bill Payment for amount in 1.

3. Vendor credit as partial refund  ($113.04)

4. Credit Card Credit using AP.

My totals are not $0.00 as in your image. Please see Red highlights numbered 1 and 2.

Transactions 2, 3, and 4 have not posted from the credit card company.

Is this correct?