How the purchases account is closed?

By transferring to trading account

The correct answer is option 1- By transferring to trading account.

The preparation of trading and profit and loss account requires that the balances of accounts of all concerned items are transferred to it for its compilation. 

Opening stock account, Purchases account, Wages account, Carriage inwards account and direct expenses account are closed by transferring to the debit side of the trading and profit and loss account. This is done by recording the following entry :

Trading A/c Dr.
       To Opening stock A/c
       To Purchases A/c
       To Wages A/c
       To Carriage inwards A/c
       To All other direct expenses A/c

Thus, from the above entry we can see that purchase account is closed by transferring it to trading account.