Final answer:
Adjusting entries serve to update account balances of income and expenses at the end of an accounting period, aligning with the accrual basis of accounting. They do not directly reduce the balance of revenue, expenses, and dividends but adjust for income and expense matching. Examples include recording of accrued or deferred revenues/expenses, and depreciation.
Step-by-step explanation:
The characteristics of adjusting entries in accounting are updates made to the journal entries of a company's ledger at the end of an accounting period. Adjusting entries are necessary to ensure that revenue and expenses are recognized in the period they are incurred, following the accrual basis of accounting.
Unlike the statement in the question, adjusting entries do not reduce the balance of revenues, expenses, and dividends directly; instead, they update the accounts to reflect the true financial position and performance of a company. For example, an adjusting entry may be made to record depreciation for the period, which increases the expense and reduces the value of the asset rather than reducing revenue.
Adjusting entries can be categorized into five types: accrued revenues, accrued expenses, deferred revenues, deferred expenses, and estimates. Each type has a unique impact on the financial statements, but the overall goal remains the same - to align the financial records with the actual financial activity and prepare the financial statements for a new accounting period.