Cartoon drawings & "private areas"

The girls and I were having art time this morning and I was watching Grace color her picture. It was adorable to watch her draw the face, the eyes & legs. I said, " Oh, Grace, your picture is so beautiful!" She smiled and said, "And that is his private area."
What??? Holding back my violent laughter, I said, "Oh, Grace, that is innapproiate."
Really though, I'm very proud of her artwork, it's lovely for a 3 year old- I'm just not ready to be talking to her about that body part yet! (She informed me a minute ago that that was a picture of her Daddy peeing in the potty! Oh. My. word. I might have to frame this one!)