When a customer pays for their order with PayPal, that order can not be cancelled. Instead, it must be refunded.
Explanation
When customers pay for their order with a credit card, the payment is authorized, but not captured. Therefore, we don't have the money until the payment is captured. Because we have not yet captured the funds, we can simply cancel the order.
However, when an order is paid with PayPal, funds are automatically captured at the time of purchase. Therefore, the customer's funds have been transferred to us. We have money, and therefore, we can't simply cancel the order. Instead, we must refund the customer's money.
How To Refund an Order
- Open the order in Magento
- Go to the Invoice. (There should only be 1)
- Issue a Credit Memo on that invoice
- Complete the information in the Credit Memo and Save.
- This will trigger a refund at PayPal.