The following article has been created to detail how the franking credits are used within the system to offset against the tax on net income.
Example
Note that for the following example, I am within the Calculate Profit/Loss screen within the Period Compliance screen at year end.
See the following screenshot. 
The Franking Credits available in this example are 500.00
The Tax on Taxable Net Income figure is $116.00
Of this, $10 has been offset as Foreign Income Tax offset, leaving $106.00 in Taxable Income.
The Franking Credits Tax Offset row is $106.00, indicating the amount of franking credits used to offset the remaining taxable balance. This brings the Tax Payable balance to $0.
System Journals
Once completed, within the transaction list the system will post income tax, and then posts the credit offset in system journals as well to get it to 0.
See the following example
System Journals can be accessed from within the transaction list by checking the box next to System Journal. 
Excess Franking Credits
Once the period has been closed, excess franking credits will be converted into a tax loss by the system. These losses can be viewed within the View losses section of the Period Compliance screen.
For example, assume $100 in Franking Credits were available. $50 worth were used to offset the income tax, the remaining $50 will be carried forward as a loss.
For more information, see the following article from the ATO: Losses Information