In File: includes\references.inc

193:     function _get($type, $trans_no=0, $ref=null)
194:     


203:         $sql = "SELECT `$ref_fld` 
204:                 FROM `$trans_table` tbl
205:                     LEFT JOIN ".TB_PREF."voided v ON 
206:                 tbl.`$tno_fld`=v.id AND v.type=$type"
207:             ." WHERE ISNULL(v.id)"
208:             .($type_fld ? " AND tbl.`$type_fld`=$type" : '');
209:         if ($ref)
210:         {
211:             $sql .= " AND tbl.`$ref_fld`=".db_escape(trim($ref));
212:             if ($trans_no)
213:                 $sql .= " AND tbl.`$tno_fld` != ".db_escape($trans_no);
214:         } else {
215:             $sql .= " AND tbl.`$tno_fld`=".db_escape($trans_no);
216:         }

It checks that the reference number has not been used, so do I need to add the compare statement before this?

I think that both kinds of voiding are needed. When you change it, you may find the way it works now is quite often useful.
Here for your scenario we issue Credit Notes too(if invoice is already printed and delivered, no matter what is the reason to cancel it).
I think you might get into "user" problems if many people use your system and have too many empty/voided invoices if you don't have the option to void it like it is voided now. It might cause extra tax inspections for example...
Voiding is used here when everything is still internal and you are sure you can fix the problem quietly and smoothly.

SELECT GREATEST MAX(CAST(SUBSTR($ref_fld, ".(strlen($prefix)+1).",LENGTH($ref_fld)-".(strlen($postfix)+strlen($prefix)).") AS UNSIGNED)), MAX(Sql to voided table)

or would it be better to use a CASE statement?

so I should be looking at:-

File:  includes\references.inc

83:     function _parse_next($type, $template, $context=null)
84:     {

this section:-

File: includes\references.inc

169:         // retrieve last ref number in the refline from original transaction table
170:         $sql = "SELECT MAX(CAST(SUBSTR($ref_fld, ".(strlen($prefix)+1).",LENGTH($ref_fld)-".(strlen($postfix)+strlen($prefix)).") AS UNSIGNED))"
171:                 ." FROM `$trans_table` tbl
172:                     LEFT JOIN ".TB_PREF."voided v ON tbl.`$tno_fld`=v.id AND v.type=$type"
173:                 ." WHERE ISNULL(v.id)"
174:                 .($type_fld ? " AND tbl.`$type_fld`=$type" : '')
175:                 ." AND `$ref_fld` REGEXP ".db_escape('^'.preg_quote($prefix).'[0-9]*'.preg_quote($postfix).'$');
176:         $result = db_query($sql, 'cannot retrieve last reference');
177:         $result = db_fetch_row($result);

?
My understanding of this (and my knowledge of sql is worse than php!) and ignoring the Regex..
Select the largest reference from debitor_trans
Join table with voided where id and type match

so this function returns the result which is then increased or decresed in function _increment($reference, $back=false)
    {

so the changes need to be made in function _parse_next.....???

File: includes/db/class.reflines_db.inc

168:     function save_next($type, $reference, $line=null)
169:     {

?

hence:

search refs, find highest value for that type (and year if new templated numbering is used)
search voided for highest value for that type (and year if new templated numbering is used)
Take the larger of the two and increment by 1

So...
search refs, find highest value for that type
if id equals id in voided
increment ref by 2
else
increment ref by 1

The other work around is to manually increase the ref # for the next invoice, but you have to remember to do it which is not ideal.

but I cannot find out why it was changed? there seems to be a couple of posts pre 2.3 where users want change invoice???

Do you know the forum post where this was discussed?

I think the code is the following added to admin\db\voiding_db.inc

109:     $Refs->restore_last($type, $type_no);

Please note line number is from 3.1 version... it's line 128 in latest version.

@apmuthu, your solution requires that a new invoice be created, this is not always the case, thanks for the suggestion, but I will stick with credit notes

@joe / @itronics: if this is a code bug, we need to fix it forthwith.

If you then void transaction # 2 you get the following:-
Sys. #         Invoice #
    1                        1
    3                        3
    4                        4
    5                        5

Which for me gives the correct functionality

However if I void the last transaction - #5 and then create a new invoice you get:-
Sys. #         Invoice #
    1                       1
    3                       3
    4                       4
    6                       5

So ignoring ‘Legalities’ and if you have already printed / issued the invoice there are now two invoices numbered #5 (If this invoice was voided and another created after there would be three invoices #5 and so on)

So:
1.    This is not consistent.
2.    This could be confusing
3.    In Colombia this is illegal (In essence invoicing software must show the same functionality as traditional pre-printed invoices, where an annulled invoice would be written or stamped ‘Annulled’ on all copies)
My current work around is not to void invoices, but issue credit notes.