You can certainly Create a Custom Field picklist and name it Cancellation Reasons/Conditions. However, we also have the Lost Reason which you can fill in. Once you change the Booking Status to Lost, you will be prompted to fill in the Lost Reason.
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If your Lost Reason is not listed in the Picklist, pressing the Manage Lost Reasons button will take you to the Lost Reasons Settings Page, where you can add a Lost Reason. Please note, that only users with admin user roles can manage Lost Reasons.