I am having this same issue, but I also need to update the fulfillment location on products that had been previously refunded. But since that order is still technically unfulfilled, I can't change the location. I need to be able to do this so that our reporting is correct, showing that it is being shipped from the correct location. This needs to be fixed!!
Yet another Shopify User adding to this thread. After 4 years Shopify is choosing to ignore this issue even with over 18 pages worth of people saying this needs to resolved as the current way just does not work/make sense. To have to fulfill an order before cancelling/refunding it is just plain stupid and backwards. If the order is cancelled it should not show in the orders page as needing action. Its very confusing to see that everyday even though nothing actually needs doing.
I did actually try the workaround on page 16 and I am happy to say it worked. But we should not have to do this to remove the unactioned order from the page. When an order is cancelled/refunded the 'unfulfilled' stautus should change to 'Cancelled/Refunded' so it doesnt show as needing action. This should be a simple fix but Shopify refuses to even acknowledge this thread now. Not a great way to treat their paying customers.
We are still a relatively new shop but I am now already looking into alternatives as I do not like how Shopify are treating their customers by ignoring them, extremely unprofessional.
+1 I've also just spent almost an hour of my life that I'll never get back reading all 18 pages of this thread. I simply cannot believe Shopify has not addressed this. There should absolutely be a Cancel --> Delete option for orders that are canceled and refunded. There should also be a bulk action to restock items from these orders, unless there is one and I'm missing that?? The workaround to "fulfill" is not based on real world scenarios or accounting principles. It's just that - a workaround. In addition, there's always that pesky inflated number of orders that don't actually need to be fulfilled. I feel like I'm losing my mind here.
[ !!! SOLUTION !!! ]
I don't know why nobody came up with solution for this nor shopify team suggested that yet, and it's so simple. When your order is partially refunded or cancelled but still shows the annoying number like you have an unfulfilled orders and you marked it as fulfilled and that did not help? Go to the order(s) in question, click "More" and then "Cancel fulfilment" - Order will still show as "Cancelled" or "Refunded" and "Fulfilled" on the list of orders but the annoying and misleading number beside "Orders" will be GONE forever.