Giving evidence for the prosecution, Stuart Martin alleged that he expected fellow councillor Andrew Williams to pass the money on quickly to a council officer so it could be put it through the council's accounts.
When he checked a week or ten days later that the money had been banked, he found it had not.
He told York Crown Court he then contacted the ice cream vendor, John Taylor, who told him by email that he had given ﾣ220 to the Mayor.
The jury heard Mr Taylor had been selling ice creams at the civic Diamond Jubilee celebrations on June 4, 2012, and the money was Ripon City Council's share of his takings.
Williams, 33, of Locker Lane, Ripon, denies fraud. The jury heard that he was Mayor in 2012 and chaired the celebration's organising committee.
Cllr Martin said he was in charge of health and safety at the event on June 4, 2012, so when the ice cream vendor approached him with a handful of rolled up banknotes, he sent him to Williams.
"He engaged in a conversation for a brief moment with the Mayor, handed him what was in his hand, the Mayor then put that into his pocket and the ice cream vendor walked away," said Cllr Martin.
He alleged he arranged for the council's finance committee to discuss the missing money but did not feel it was appropriate to discuss the matter privately with Williams.
In January, after Williams had twice told finance committee meetings that he was chasing the ice cream vendor for payment he went to the police.
After William's barrister Alasdair Campbell asked him several times, why he had not told the committee he had seen Williams receive the money, or speak to Williams privately about it, Cllr Martin said: "I was very conscious about making accusations against the position of Mayor. It is a position I hold very dear to my heart, having held it for two consecutive years, and I wanted to give the mayor every opportunity to declare the money."
He also said he had been aware that public money was concerned.
The city council's clerk, Ruth Terry, who was responsible for banking any income to the council, alleged she had never received cash from Williams.
The trial continues.