1) What type of account is inventory and on which financial statement is it found? Does it have a debit or credit balance? Also, Chapter 7 states that "LCM" is the proper valuation method for presenting inventory in the financials. What does this mean and what is the reasoning behind it?

(2) What is the difference between the physical flow of goods and the flow of costs through a company?

(3) By having different inventory methods that result in different costs of goods sold and gross profit, arent we encouraging companies to play with the numbers?" Please discuss.