From Jennifer, in the "why didn't I ever think of this" department:
I have a handful of black and navy washcloths that I save for cuts, scrapes, and bloody noses. When I'm wiping up the kids (now 3 and 5), they don't have the added trauma of seeing their own blood on a washcloth. Since I started doing this, their "recovery" time has improved immensely, and the whole ordeal of patching-up has become no ordeal at all. In fact, last year, the only time I put on a bandaid was after my daughter fell off her bike.