Rear Axle collar / Spacer?

Pulled the wifes rear wheel off to change the tire without paying to much attention because it was easy to take apart...BUT, which way does the axle spacer go in? I thinking the cutdown or recessed end goes in toward the wheel/bearing, however the exploded parts view shows it going out toward the swingarm?

With the discussion on rear wheel play, it might be good to revisit this thread. Also there is a great pictorial in the "pictorial and maintenance" section on rear wheel removal. I hope this helps someone, it did me. I'm a believer in that pictorial section. Thanks to all who posted there.