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Weird situation with cake baker...How to handle it? (kinda long)

FI and I were originally going to get married back in 2009 but cancelled due to a car accident and a couple of other things. At that time, our wedding cake was already paid for in full ($505.) When I called the baker about our postponement, she understood our situation and I told her to just keep the payment and we would use her services when we were able to go through with the wedding plans. I kept in contact with her (she's a friend of my bff's grandmother) and when we set our new date, I called her to have a consultation and draw up an updated contract.

At the consultation, we went over the details of the cake, and her price per person has went up by $1, which I have no problem with paying the difference ($160). But at the end of the consultation she writes up the new contract and makes a copy and hands it to me and tells me I owe a balance of $497. I'm kinda stunned by this and she says that I received my refund of $337, (not including the non-refundable deposit of $168) so I now owe her the refunded amount plus the difference between the old and new prices.

Now, the problem is this: I never received a refund. I put down a $168 deposit when I originally booked her, and then I paid the balance of $337, which she acknowledges. But she says that I got a refund of the $337, which I didn't. I already paid a total of $505 to this cake, and I'm not going to pay an ADDITIONAL $497 (which is the $337 plus the per person difference of $160), but I can't prove that I never got a refund. I asked her to go through her books and see how the refund was issued. If she issued a check or money order, we could verify if it were cashed or she could see that a refund was never issued.

I hope this makes sense, but my question to you guys is this; how do I handle the situation if she sticks to her story and says that I got a refund when I know that I didn't? Should I just swallow the $337 loss and just pay her? Or do I stick to my guns even though I can't prove my side? If I pay the new balance of $497 PLUS the $505 that I already paid, that will make the total cost of this damn cake $1002 which is RIDICULOUS. I know I still have a long time before my wedding, but I don't want to overpay for something. While I appreciate her patience in still working with us after such a long postponement, I don't think it's worthy of double paying since I paid her fully and didn't receive a product when we first signed an agreement.

This is sort of a vent too, since she hasn't called me back yet (our consultation was just this past Tuesday.) I guess I just need to get this out of my system because FI doesn't understand the drama over a cake lol but I figure you ladies would at least have some constructive criticism or humorous comments to make me feel better...
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