(I'm leaving off the discussion about the "we call" portion of the phrase, as that has been quite suitably addressed in other answers.)
BS can also stand for "baloney sandwich".
Baloney is a word that can be used to refer to something that is false. If someone speaks something untrue, whether from dishonesty or simply error, then that a person could exclaim, "Baloney!".
If someone says something that has a bit of untruth, a person could refer to smelling a bit of baloney in what is being heard. However, if you have a giant whopper of a tale, you could have so much baloney that you have enough to make a decent-sized sandwich out of it. Therefore, a bunch of lies may be referred to as a "baloney sandwich".
This phrasing has seen less usage as widespread profanity has simply become more popular, but if you're interested in keeping language clean of inappropriate language, then BS can refer to "baloney sandwich".