Problem trying to update iPhone 4 to latest software

When in iTunes, it is asking me if I want to update my iPhone Software. But when I click to do that, I keep getting the message, "There are purchased items on the iPhone “Kathy Cortez’s iPhone” that have not been transferred to your iTunes library. You should transfer these items to your iTunes library before updating this iPhone. Are you sure you want to continue?"
Where do I find what these items are?
I have the iPhone 4. I currently have IOS 7.0.2. It is asking me to update to IOS 7.0.4.

File>Devices>Transfer Purchases.

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