How to properly fix this issue? 1. Customer paid using Klarna 2. Order unfulfilled, customer deposit still unapplied but "deposited" due to payout 3. Customer disputed on Klarna 4. Accounting on the payout deposit for the date which the dispute was settled marked the refund as a "fee" rather than creating a customer refund 5. Period in which the "Fee" deposit took place is locked 6. Customer Deposit still open unapplied and the "refund" is incorrectly marked as a fee

Going under the assumption that you don't want to reopen the period: Fix with JE in the current period and apply the JE to the deposit.

The assumption is correct. What would the JE look like?

DR (account with Deposit balance) - Tag Customer on this line CR (account with Fee balance)