What is the best way to cancel an invoice? Just delete it or do I need to do something in the journal entry or something else?
If you didn’t send the invoice to customer yet, just delete it.
Otherwise this has been already answered, see How to cancel an invoice?
In this case, what would happen to the Inventory? Would deleting the Invoice add the stock back?
Yes. If you delete an invoice, then obviously inventory will be added back as if the invoice was never created in the first place.