Ok, I wrote this paper by myself, 100%, for a few months and it has now finished. I included my supervisor's name since he did give some input on the matter, such as arrangement of abstract and the sort. I also included him because he's the "supervisor".

But a few days ago, he asked me to put in this other author's name that didn't do anything for the paper. The only thing he did was to secure the funding for the paper. Since that is his job anyway, I think his name should be on the acknowledgement, not as an author; am I right?

I'm slightly confused with this decision to put him as an "author". Why? He didn't do anything...
I wanted to ask the supervisor, but I think I'd ask your opinions first regarding the matter. Should I even ask him?

Any advice would be appreciated.

This is sometimes known as "gift authorship".

One convention is to include the laboratory director, centre director, or any prominent person who could be remotely connected to the paper. This convention is not necessarily ethical unless there is substantial contribution to the publication; but many often seek to flatter the powerful or add prestige value to the authorship list.

However, it may result in unpleasantness if you disagree with your supervisor...

"...unpleasantness if you disagree with your supervisor" is the foremost issue ;)

You sometimes put other people's names in as a courtesy. Names are included for a variety of reasons.

For example, I was expected to put my second supervisor's name in as an author on some earlier papers even though he made no contribution as he filled in the grant application for my PhD. As with you, I thought a place in the acknowledgements was more appropriate. However, key financial contributor personnel are added as authors as standard.

For a later book chapter, I wanted to add the names of my two predecessors alongside mine on the project we'd worked on as we'd done the vast majority of the work for it, giving us our respective PhDs. Whilst they didn't contribute directly to the book chapter, there wouldn't have been a project without them. My primary supervisor and a further post-doc had been minor but significant (co-ordinating) contributors to the book chapter, so rightly they were listed.

In the end, I was only able to add the name of my first predecessor - he actually sent his raw data so strengthend his case for inclusion and his actions helped save the book chapter (without my recall and literally writing most of it - and I made sure I was 1st author - and his sending of data, the deadline could not have been met my supervisor and the other other post-doc had taken on too much). My former supervisor in return asked for someone else to be added who'd provided data for the overall project and that was fair enough too.

My second predecessor expressly wanted nothing whatsoever to do with the book chapter, even though I believed he deserved his name there as a co-author and his name was left out.

Translated, comply with the wishes of those concerned as you never know when you will need them again. It makes for a quiet life as you push onwards through your PhD. You often have to play the politics to give yourself the smoothest ride.

Ian (Mackem_Beefy)

Thanks Ian and Meaninginlife. Feel a bit better about the whole thing.

I guess I'm still getting use to the academic culture : [

According to several research guidelines, gift authorship is still unethical.
There were also incidents when some so-called authors revealed that they were unaware of the publications or never read the paper.

So, you may want to let the third author read your paper.
He may say thank you, and it is ok to leave him out...
He may even spot some typos and suggest improvement on paper, say formatting etc...

Because you mentioned earlier that your supervisor may not be very forthcoming in providing feedback on your works, it could be an opportunity to ask for comments from the “third author”.

Since he is the third author, he should be responsible for any outcome of this paper.
Be proactive. It could be a good learning experience if he shares on writing academic paper…

He secured the funding for the project, therefore the project and the paper would not exist without him - he should definitely be an author.

All authors should acknowledge the source of funding or support, instead of offering “gift authorship”.
You may refer to the guidelines in the websites below:
http://wustl.edu/policies/authorship.html
http://hms.harvard.edu/about-hms/integrity-academic-medicine/hms-policy/faculty-policies-integrity-science/authorship-guidelines
http://europepmc.org/articles/PMC2541639/pdf/bmj00468-0008.pdf

The issue is some researchers fear that future funding may not be approved.
However, not everyone accepts “gift authorship”; some may refuse their names to be included...
Why should PhD be so political? :-(