An S-Corporation works just like any other corporation with respect to income, balance sheets, etc. The difference is that its bottom line profits are not taxed to the corporation. Rather they pass through to the owners in accordance with their percent ownership.
Withholding on the payroll portion in your example works for the owner just as it would any non-owner employee. Distributions are a return of capital. As such they are not deducted by the corporation nor are they income to the employee/owner. (They do become taxable if they begin to exceed initial capital plus retained earnings).
So, you pay tax on your salary and your portion of the corporation's earnings. Distributions do not affect taxes except as noted above.
I don't know where you get the 60/40 split. My CPA never heard of any such rule of thumb. The key point is that the "split" is such that the salary is reasonable for the job being done and that the owner is not artifically lowering the salary and boosting the corporate profits. Why? Since Medicare taxes have no upper salary limits the IRS assumes that the owners will try to keep owner's salaries down to avoid Medicare taxes, which are only collected on salary. Every dollar you can shift from owner salary to S-Corp income saves a total of about 3.5 cents in Medicare taxes. Otherwise, every thing else stays the same.
So, if you are the sole owner of an S-Corp that makes buckets of money and you pay yourself a salary that would be competitive with similar positions in like companies you'll be fine regardless of what the "split is". On the other hand if you "underpay" yourself and put lots into the S-Corp's bottom line you are raising a red flag.