And then he would have gone around telling us, his grandparents, and anyone else that he had to shit.
If that's the only time the child says "shit", not as an all-purpose swear word, I'd say mission accomplished. And if the child ends up learning "bullshit", you can take the child to a dairy farm.
How would you describe the words Fuck, or Bitch?
Be consistent in associating each taboo word with a place, and be honest and logical about this place. "Fuck" is for the bedroom, and "bitch" is for a place that you have associated with dogs. ("Blurred Lines" is about adopting a dog and discovering her arthritis.) This teaches the child that there's a place for everything. You're laying a conceptual foundation that will make it easier for the child to accept later on that school is not the place for some things.