Understanding Magento order statuses
Note: Magento credit memos are always exported to Xero as Credit Notes.
Scenario 1: Order is placed and cancelled
Cancellation could happen automatically when for example a payment is taken via a third party website and the payment does not go through. Only in scenario 1 would an order be considered 'cancelled' in Magento.
Scenario 2: Order is refunded before it is shipped
Scenario 3: Order is shipped, then returned completely by customer for a refund
Scenario 4: Order is shipped, then returned partially by customer for a refund