Nothing goes on the corporate books, except the actual amount of the distribution. The distribution reduces Retained Earnings.

On the shareholder's 1040 they report the distributions in excess of basis on Schedule D/8949 as a sale with -0- cost. 

My main concern was the fact that doing it as you suggested, results in the shareholder pays tax on the excess distribution, and has a reduction to his basis on the 1120S.

Is the answer that he gets to add the excess distributions (which he paid tax on), to his outside basis?  If so, that would result in a reduction to the inside basis, and an addition to his outside basis.

Yes the shareholder pays tax on distributions in excess of basis.

Shareholder's basis is nowhere on the 1120S.

"If so, that would result in a reduction to the inside basis,"

It reduces the Equity. An asset was removed (money), so the equity is reduced.

"and an addition to his outside basis."

He did not invest into the entity. He took from the entity, more than was his, at that point in time. Perhaps you want to establish this as a shareholder loan (owed from the person) and the next year, if there is good income, the loan can be repaid by not taking that as distribution.

This also assumes there is not other shareholders.