What to do when your child walks in on you

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Ok so this may be a little TMI and off topic but I really need some help from other parents. 
This morning my 7 year old walked in on me and his step father. 
When I went to have a conversation with him about why he was up so early in the morning this is what happened.....
'then I thought I should tell you I was up and that's when I saw you two doing that thing' Son
'How long were you standing there for?' Me
'about a minute' son
'mummy & josh were just playfighting' me
'oh I thought you were having sex. I heard you making this noise...' Son
and that is where I cut him off and quickly tried to insist we were having a tickling match. 
HELP???? Do I just ignore it? or do we sit him down and have the talk? 
We are worried that because he doesn't really understand he might try it with his best friend (who consider each other boyfriend/girlfriend). He also doesn't understand how personal it is.