1) What type of account is Merchandise Inventory and on which financial statement is it found? Does it have a debit or credit balance? Also, one of my chapters states that "LCM" is a guiding principle for presenting inventory in the financials. What does LCM 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.