Final answer:
The process of formally recording or incorporating an item in the financial statements of an entity is called financial reporting.
Step-by-step explanation:
The process of formally recording or incorporating an item in the financial statements of an entity is called financial reporting. Financial reporting involves the preparation of financial statements, such as the balance sheet, income statement, and cash flow statement, which provide a summary of a company's financial activities over a specific period of time.
For example, when a company sells goods to a customer, it records the sale as revenue in its financial statements. This ensures that the financial position and performance of the company are accurately and transparently represented to stakeholders, such as investors, creditors, and regulators.