I'll try to explain this as if you've never taken an accounting class. There are three basic financial statements.Income statement. This measures the revenue and expenses for a given period of time. If you have $100 in revenue and $75 in expenses, your profit is $25.Balance sheet. This is a snapshot of the financial strength of your business as of certain point in time. Typically financial statements are prepared on a monthly basis, so the snapshot is typically at the end of the month. This statement measures three basic areas; assets (cash, inventory, other things of value), liabilities (what your business owes to others, i.e. unpaid bills) an equity (the net worth of your company). The equity of your business is the amount of capital contributed, in your example, $1 million. Equity increases as you make profits and decreases if you incur losses. It also decreased to the extent that the owners draw profits from the companies (for non salaried reasons).Cash flow. This is a reconciliation of your net income to the cash on hand at the end of the month. It answers questions like, "If I made $100,000, why did my cash increase by only $5,000? Where did it all go?"Let's start with your first question.How does a partnership divide profits?The distribution of profits to its shareholders (owners) are typically based upon their ownership in the company. In your example, each person contributed $500K to start the company. Since the amounts are equal, you are 50/50 partners, with each person entitled to 50% of the profit distribution.There are no hard and fast rules on distributions, with regard to how much and how often. If you just made $100K in a given month, you could immediately distribute $50K to each partner, but there may be reasons why you might not want to do so. Those funds may be needed to invest in other assets to expand or build your business or it may be needed to pay existing liabilities or debt repayments. When distributions are made, they are recorded as a reduction to your equity in the opposite way that profits are an increase to equity. From a balance sheet perspective, if you distribute the exact amount you earn, your equity will not change.It is worth noting that accounting for distribution of profits differs from compensation, although the effect is the same (i.e. money in your pocket). Compensation is a salary that is paid to both you and your partner, regardless of whether a profit (or loss) occurs. In essence, you are an employee of the company. Like all employees, monies paid for payroll expenses are recorded as an operating expense and appears on the income statement, rather than balance sheet.I hope this provides a sufficient overview, but if you have any questions, feel free to ask in the comments section of this answer.