[A} We will understand Amount Set off using an example.
[B] Consider that you have purchased goods worth Rs. 10000 from a seller. But for some reason, you return Rs. 5000 worth of goods.
[C] Now you have to pay the seller only Rs. 5000. But according to the "Payables" tab in the Payments module, you have to pay rs. 10000 as originally decided.
[D] Therefore you create a Debit Note worth Rs. 5000 for that seller. Thus Rs. 5000 is the amount set off
[E] Remaining Rs 5000 is the balance which you still have to pay to the buyer.
[F} In case of receivables, a buyer will buy goods from you. In case of return of goods, you create a credit note for them.
[G] This amount in credit note is the amount off set. The balance is then to be paid by the buyer to you.